The 2008 economic downturn had a profound impact on this country, a once dominant construction sector which rose to unprecedented levels of activities was left devastated. It is indeed welcome to see in 2017 a renewed optimism within the construction industry. The Construction Industry Federation estimated the value of construction output in 2015 was around 6.2% of GNP and employing 137,000 in 2016, yet only producing 14,000 new dwellings, demonstrating the construction industry is operating at 50% of its optimum level.
It demonstrates that challenges persist for those operating in the industry, and the importance now is to strike a balance between proceeding with confidence and not falling into the traps that have negatively impacted the industry for the past decade.
Your Business and the future
Housing demand has dramatically increased in recent years, with supply being so slow, it has pushed up prices, changing the makeup of the property market in Ireland. In response to this, the “Rebuilding Ireland” plan was launched by Minister Simon Coveney, to radically accelerate housing supply in Ireland. The plan sets out its main target as boosting the delivery of housing to a point where 25,000 new houses are built by the year 2021.
However, there is evidence that supply will not be able to meet demand. With the CSO estimating that the Greater Dublin Area will see its population increase by just over 400,000 by 2031. Future housing development will need to focus on the regeneration of urban areas, where capacity exists for density.
While the Government and the Central Bank have sought to assist first time buyers by offering support by way of tax rebates or relaxing of deposit rules, the continuing upward pressure on costs of development are the highest in Europe. The Department of Housing study into the costs of house development in Ireland should give transparency to the process and develop new approaches to cutting costs.
The commercial market has been experiencing considerable interest from domestic and international investors over the past twelve months. There are already signs, that commercial property development has peaked in Dublin. With more than 12 million square feet of commercial office space being developed or planned in the capital, capable of accommodating more than 100,000 employees by 2021.
Any business operating within the Construction Industry, wishing to position themselves to take advantage of the renewed optimism within the Sector, will require a solid organizational structure that has robust systems and management structure to underpin their growth ambitions.
- Span of Control – the business will need the flexibility to manage multiple projects while ensuring Management is not over extended in controlling those projects.
- Project finance – the availability of construction finance remains a challenge, with some lending coming from the pillar Banks, subject to strict criteria. However, bridging the shortfall can be expensive. All options need to be explored and steps taken to minimize the period for which funding is required. Continuous monitoring of compliance with Banking covenants within facility agreements, not simply repayment terms, can be expected from the new wave of prudent lenders.
- Tax structuring - Appropriate tax structures to minimize tax leakage and ensure appropriate compliance with RCT, VAT requirements, tight margins on projects do not allow for additional penalties and charges for late payment or filings.
- De-risking projects – isolating the risk inherent in projects through the use of designated entities, the sub-contracting of works, the elimination of intergroup and personal guarantees for promotors must be addressed prior to commencement.
- Organisational governance – structured organisations, with clear lines of communication, regular meetings and reporting will assist with, considered, timely, decisive decisions. Operating with a board of Directors, and perhaps an experienced external Chairperson will control the influence of dominant personalities and ensure a collaborative approach to all key business decisions.
- Lean processes – Operating with finely tuned systems and procedures will eliminate slack and drive efficiency within the business.
- MIS and Reporting – The benefits of a tailored management information system, using IT improves the timeliness of delivery of reports, access to key information and monitoring of performance indicators, in the office, or remotely on-site.