The road to recovery – navigating inflation and delays within the construction industry
We’re all painfully aware of the rapid increases in inflation our economy has recently endured, as well as the financial pressures created by hold-ups in the delivery of materials such as cement, bricks, roof tiles, plaster and white goods.
Building companies have been absorbing the massive costs created by this perfect storm. But what does the landscape look like now? And how can you manage your supplies and lost revenue?
Delays – the current picture
Delays caused by COVID-19
The spread of the pandemic has affected regions at the very heart of many global supply chains, and concerns remain over depleting or idling stock. In addition, the cost of supplies may increase thanks to overtime, expedited freight costs and premiums.
Looking on the positive side, this will hopefully be a temporary situation, and we are confident that the impact will continue to ease over time.
However, it’s important that we continue to identify and evaluate alternative sources of supply, and that contingency plans are in place in the event that future variants create additional problems.
Supply issues due to Brexit
Industry figures indicate that Brexit, alongside the pandemic, has resulted in three-quarters of British manufacturers struggling to cope with delays in moving goods. And research from the manufacturing trade group Make UK demonstrates that 74% of firms (in a survey of more than 200 leading industrial companies) are facing delays with EU imports and exports.
Figures from Germany in January 2022, for example, showed that imports from the UK had fallen by more than 56% to €1.6bn (£1.4bn) from the same month a year ago. This disruption seems set to continue for some time.
Lorry driver shortages
Thanks to travel becoming increasingly restricted, and significant parts of the economy shutting down, many European drivers went home, never to return. The pandemic also created a large backlog in HGV driver tests, making it impossible for enough new drivers to begin. In fact, a Road Haulage Association (RHA) survey of its members estimates there is now a shortage of more than 100,000 qualified drivers in the UK.
We’ve all witnessed the lack of groceries on our supermarket shelves, but this has much wider-reaching consequences that permeate every UK industry. However, the government is adamant that this is a short-term issue which they are working hard to resolve.
Our tips on managing your supplies
Although we’ve heard assurances that supply chain issues are becoming less of a problem, some do remain. Plus, the impacts resulting from increases in inflation are ongoing. It always pays to be prepared for further disruption.
We recommend buying materials upfront, as early as you can, and storing them until you need them. However, you’re going to need capital to make this happen.
Our other top tip is to form a respectful and positive relationship with your building merchant, and obtain credit so you can buy now, and pay later. When you receive an invoice, pay it promptly, so they’re in no doubt that you’re reliable.
However, if you need additional help, you can approach RQ Capital for a loan. We understand the benefits of paying on time, so we will process payments to you quickly and provide the cash you need. Contact us to find out how we can help you financially, so you’re ready for whatever the industry throws at you.
Price your development scheme correctly
Pricing your development correctly is critical if you want to gain enough revenue to absorb your increasing costs without pricing yourself out of the market. Here are a few of our suggestions to help you get it right.
When buying a new build, customers will pay a premium for it being ‘brand new’. But they will be savvy, and compare it with other, similar builds in the area. So it pays to do your homework, and find out what other sites are charging for their properties, comparing like-for-like houses, and taking into consideration the number of properties on the site.
You can also check the price per square foot and compare it to the resale market, referring to the Land Registry for the sold prices of similar developments.
Additionally, putting a contingency plan in place ensures that external variables do not cause a project to fail – just like a financial safety net. We would recommend a contingency of between 5-10% of the total project cost, depending on the development.
Always bear in mind, however, that around 85 percent of every construction project goes over budget. So remember to factor this in when you’re considering your profit margins.
Get in touch today to discuss how we can work together and bring your development to life.