61% of homeowners surveyed in the Republic of Ireland expressed concern about the risk of a housing downturn in the future, compared with 37% in Northern Ireland.
Consolidation of contractors advised to address cyclical industry woes.
Results of a survey conducted by RSM in the Republic of Ireland and Northern Ireland suggests that renters and home owners in the Republic of Ireland feel they are facing a greater degree of uncertainty across the board, than their counterparts in Northern Ireland.
While almost twice as many (61%) of homeowners surveyed in the Republic of Ireland said they expected the value of their home to increase significantly over the next few years, compared with 33% in Northern Ireland, 61% of homeowners surveyed in the Republic of Ireland also expressed concern about the risk of a housing downturn in the future, compared with 37% in Northern Ireland.
Mortgage rates are also causing more concern in the Republic with 53% of those surveyed saying they are worried about increases in interest rates, compared with 36% in the Northern Ireland. 29% of homeowners in the Republic reported as being in negative equity, compared with 17% in Northern Ireland.
Of those surveyed, adults in Northern Ireland are more likely than those in ROI to be home owners, with 52% of those surveyed in Northern Ireland reporting to be homeowners, compared with 38% in the Republic of Ireland.
The ongoing pressures on the rental market in the Republic of Ireland is also evident from the survey results, with three in ten of renters in the Republic of Ireland saying their rent is unmanageable (29%), compared with 13% in Northern Ireland. 69% of renters in the Republic of Ireland said they were concerned about increases in their rent in the next year, compared with 52% in Northern Ireland, and 48% of renters surveyed in Northern Ireland said they were happy renting and had no intention of buying in the near future, compared with just 32% in the Republic of Ireland.
There is agreement on the issue of affordability, however, with 72% of renters in ROI and 60% in NI saying they would like to buy a home, but the cost of buying is a significant barrier to them.
Commenting on the findings, Construction Lead, at RSM, Paddy O’ Connell said; “The results of the survey verify what many already know to be true, which is that people are feeling uncertain about their circumstances in the Republic of Ireland, whether they are renting or homeowners. While respondents in the Republic of Ireland are more concerned about a downturn, this is likely to be as a result of their past experiences. Respondents also have expectations that the value of their homes is going to continue at the pace that it has, which in itself is creating a block in activity. These issues are fueled by the ongoing mismatch between supply and demand that is causing issues in the market.
“Construction companies are not immune to the impact of this uncertainty and the industry is facing into what will be a potentially turbulent year ahead, not only because of Brexit, but also because of a variety of factors such as constraints in accessing finance, increases in costs of land, labour and materials, together with the additional cost of complying with new building regulations, which is eroding their profit margins. Construction company insolvencies reportedly rose by almost 50% last year. We are aware of cases where deals have fallen through as the land is now considered to be too expensive or tight margins when tendering for projects did not fully allow for increased costs.”
In October 2017, a survey conducted by RSM Ireland and the Construction Industry Federation found that construction companies were facing significant difficulties in accessing funding to invest in their businesses and to deliver viable housing and infrastructure projects, with 63% of those surveyed who sought to borrow from financial institutions in the previous year reporting difficulty in securing finance; and this figure rose to nearly 70% amongst companies with a turnover of less than €9 million. In light of that, RSM welcomes the €750 million lending scheme aimed at small and medium size builders and developers launched by the State lender Home Building Finance Ireland last week, which Paddy O’Connell says will support access to finance and much needed activity.
However, in the medium term the industry needs to become more sustainable, O’Connell said; “There is potential for an increase of mergers of smaller and medium sized contractors so that they can achieve greater benefits of scale; “The smaller a contractor, the more exposed they are to the cyclical ups and downs on the industry. There isn’t a tradition of consolidation in the construction industry in Ireland, but the industry, and consequently the consumer, stands to benefit from contractors coming together. A larger company can achieve greater benefits of scale, achieve lower costs, introduce greater efficiencies across the company through better utilisation of resources. It makes sense in other industries and it would be a game changer in the construction industry here; it’s something we’re actively advising our construction clients on. Currently the industry has a small pool of contractors that are in a position to tender for larger projects, and that presents its own issues.”
About Paddy O’ Connell, Construction Lead, RSM Ireland.
Paddy is a Director in RSM Ireland’s Transaction Advisory Services department and the real estate and construction sector lead within the firm.
He has 18 years specialist experience in formal insolvency procedures and restructuring with extensive recent experience in managing profile construction and property development assignments.
Paddy's experience ranges from structured reorganisations to corporate receiverships, fixed charge receiverships, creditors voluntary and court liquidations to a niche specialism in solvent winding up by way of members voluntary liquidation.
Applying his management expertise across a range of sectors including real estate, construction, manufacturing, motor, IT and retail, Paddy has also undertaken IBR’s for Financial Institutions and due diligence reports for indigenous clients.