Construction

Pandemic property boom sees decline in housebuilder liquidations

Property Reporter
|
13th January 2022
construction 7

Despite a reduction in the number of housebuilders filling for liquidation during the pandemic, the market share of new homes built by SMEs has fallen.

Market analysis by real estate debt advisory specialists, Sirius Property Finance, looked at the level of liquidations across the construction industry, more specifically the sub-sector of residential and non-residential building construction.

The data shows that across Britain, there has been a steady increase in this figure since 2016 where both compulsory and voluntary liquidations are concerned.

Between 2016 and 2017, the total number of liquidations climbed by 8%. Between 2017 and 2018 there was a further increase of 19%. This was followed by a 22% annual increase from 2018 to 2019.

However, in 2020 when the initial Covid outbreak hit the nation, the number of housebuilders filling for liquidation saw a decline of -38%.

Nicholas Christofi, Managing Director of Sirius Property Finance, commented: “There are a number of influences that could have driven this decline in liquidation levels. Despite the problems posed by the initial outbreak of COVID-19 and the restrictions imposed across the construction sector, we’ve since enjoyed a property market boom that will have helped boost profit margins considerably and this will have helped many better negotiate an otherwise tough period.

"At the same time, we’ve seen a range of government initiatives implemented, such as the furlough scheme, in order to help businesses overcome the financial difficulties of the past two years. This will have certainly helped many companies who may otherwise have failed to survive.”

However, despite this positive movement, the number of SMEs operating within the sector is thought to have declined. Previous research by Sirius Property Finance found that since the late 80s, the estimated share of homes built by SMEs across England has fallen from around 77,500 a year to just 19,500 - a 28% reduction with them accounting for just 12% of all homes built.

The latest look at SME housebuilder market share estimates that this has since fallen further in 2020 to just 14,789 new homes per year - just 10% of the total market. A trend that Sirius Property Finance believes may continue as we move forward.

Nicholas Christofi, continued: “Many SME housebuilders won’t have had the cash reserves that their larger sector counterparts would have had and this means they simply haven’t been able to weather the problems posed by the pandemic in the same manner. When you also consider the widespread supply issues caused by the pandemic and the protracted length of the planning process itself, it’s been far harder for small to medium enterprises to dust themselves off and get building again.

"However, new and emerging methods of finance are available that better suit SME builders and these options are helping them to overcome the financial strain of the last two years.

"Conventionally, property development was based on straightforward bank debt. Yet now we see far more innovative ways of funding a building project and specialist lenders that are competing with high street banks head-on. These resources are now more competitive, with better terms and, often, much faster to deploy and so there is a likelihood that this will enable SME developers to fight back fiercely over the coming year.”

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