"There is a question around whether real estate and construction firms are playing it safe with their business strategies in the lead up to Brexit or whether they are simply being realistic"
A new white paper by accountancy firm, Moore Stephens, has revealed that the outcome of the general election and Brexit negotiations are key to the outlook and positivity of UK real estate and construction owner managed businesses.
It also reveals that as they wait, real estate bosses are showing less strategic ambition for growth than their counterparts in other sectors, but that they are also less efficient at taking advantage of government funding initiatives and tax credits.
The findings within the white paper are based on a survey carried out by Moore Stephens of around 700 owner managed businesses (OMBs), including 80 real estate and construction OMBs, and looks at the confidence and ambitions of firms for the year ahead.
The survey highlighted that whilst most businesses in the real estate and construction sector see plenty of opportunities to bid for new projects and expand their long-term revenues, the shortage of skilled resource, access to funding and sector regulation including business tax were all concerns.
The impact of Brexit
The report found that real estate and construction OMBs are more likely to have already experienced some negative impact arising from the Brexit vote than OMBs generally - 38% compared to 30%. This is particularly the case for smaller real estate and construction OMBs, 44% of which have felt some negative effect. Those smaller OMBs who haven’t experienced the negative impact are supportive of Brexit – 56% compared to the larger businesses where only 25% agreed with the decision to leave.
Business strategy – a lack of ambition or simply being realistic
Compared to other OMBs in general, real estate and construction business owners appear relatively unwilling to commit to specific business strategies in the lead up to Brexit. This is highlighted in the vast differences in strategic priorities across the sectors.
Only a quarter (25%) of real estate and construction OMBs are certain or likely to actively try to expand their UK customer base. This is in comparison to other sectors, where 51% of business directors see growing its UK customer base as a key priority for the coming year. Given that 90% of the real estate and construction OMBs surveyed have no export activity, it’s surprising that more aren’t looking to increase their UK customer base. This is a clear indication that real estate and construction firms are focussing on keeping current clients and carrying on ‘business as usual’ in the lead up to Brexit.
Staff training was the most popular strategy amongst real estate and construction OMBs at 29%, but this is still well below the 44% of other OMBs that plan to invest in staff training in the year ahead. [See appendix A – Strategies in 2017]
Paul Fenner, Head of Real Estate and Construction at Moore Stephens, says: “There is a question around whether real estate and construction firms are playing it safe with their business strategies in the lead up to Brexit or whether they are simply being realistic. It’s impossible to tell until we know the outcome of the Brexit negotiations, but the lack of ambitious strategy setting is likely to be down to businesses having been burnt in previous market downturns. Having learnt lessons from past experiences, businesses are preferring to set a more cautious strategy in times of uncertainty.
However, it could also be down to an aging workforce. Our white paper reveals that 93% of real estate and construction OMBs have at least one business owner aged over 50 and 23% are certain or very likely to implement a succession plan this year.”
More firms could reap the benefit of tax relief and government initiatives
One in five (18%) of real estate and construction respondents stated that the availability of finance is a concern, but the white paper highlights that most aren’t taking full advantage of the tax credits available to them, which would ease funding concerns.
However, what is an advantage to real estate and construction firms over other OMBs is that only 18% of real estate and construction businesses see external funding as a key risk for the year ahead, reflecting the fact that funding will already be in place for several projects in 2018.
A great number of real estate and construction firms are not taking advantage of government initiatives such as the Home Building Fund and tax relief, and companies looking to invest less in their own IT and new technologies could be missing out on research and development (R&D) tax credits on the technologies they have already put in place, which could fund future development projects.
Paul continued: “Our experience shows that construction companies involved with design and build could potentially claim 2% of turnover. The sector remains unaware that its activities fall within the scope of R&D relief available. HMRC states that only £35 million of tax credit, less than 2%, was claimed by the construction sector compared to the total claimed, so many businesses could be missing out."
What next for the year ahead?
Paul concluded: “The surprise general election has thrown up more uncertainty in recent weeks and whilst it does not appear to be derailing or stalling major projects now, little is known about what the medium to long term effects will be. What is clear is that the outcome of the general election and Brexit negotiations are key to the outlook and positivity of UK real estate and construction owner managed businesses, as our white paper reveals.
The Labour and Conservative parties must put the property sector, growth in UK businesses and the UK economy at the forefront of their manifestos if they are to win over the business community and put some of the concerns and issues raised in our survey to bed.”