Features - Business

2020 vision: Property and construction industry



As the political and economic environment continues to be peppered with uncertainty, the property and construction industry calls for stability. Stacy Eden, Partner and Head of Property and Construction at national audit, tax, advisory and risk firm, Crowe, reviews its 2019 Property and Construction Outlook Report, which gathers the opinions of those in the industry to capture a timely snapshot of the UK property market, provides an insight into the economic health and concerns of the industry. 

Brexit and the UK economy

As the end of 2019 draws near and the UK head to the polling stations for the fourth time in as many years, assessing the extent to which Brexit and the surrounding uncertainty has and potentially could impact the sector remains a high priority.

The findings from our research saw a shift in concern over the past 12 months, with the impending General Election cited as the top concern (27%), closely followed by Brexit (20%). As a political question mark and Brexit hangs over the country, the difficulty for the property and construction industry to plan ahead, remains. Furthermore, 73% of respondents have concerns around a no-deal Brexit and the further uncertainty which may accompany it.

Despite these concerns, the property market continues to prosper in many ways. Over half (53%) of our respondents remain confident and believe that their business will grow in the next 12 months, painting a positive outlook for the sector going forward.

UK tax and planning system

Unsurprisingly, the UK tax system has, once again this year, remained a key concern and barrier for the property and construction industry. For the third consecutive year, the majority of respondents (65%) cited the system to be unfavourable for property developers and investors, with a further 22% stating that they were unsure. Stamp duty land tax (SDLT) led the way, with 48% of respondents believing stamp duty land tax to be the main fiscal barrier to business growth, echoing the findings of the 2018 Property and Construction Outlook Report. Over recent years, high levels of SDLT has caused liquidity in the market to drop, with official figures released by HMRC in October 2019 revealing that revenues from land and property stamp taxes fell last year for the first time in a decade.

This is equally owed to the increased complexity of the tax system, which 36% of respondents cited as a key barrier to growth. While noise has been made by political parties indicating that they may be in favour of reducing levels of SDLT, less has been heard on simplifying the complex system impacting the industry and streamlining the UK’s planning regulations. Addressing these issues could lead to a boost in activity in the housing market and potentially cushion any economic blow a no-deal Brexit may cause, while reassessing the policy around Green Belt protections, which 63% of respondents believed to be non-conducive to the housing crisis, could go some way in meeting the supply demand.

Technology and its impact

Earlier this year, the Housing, Communities and Local Government Committee (HCLG) warned the government that an over-reliance on traditional building methods will see the UK fall far short of its target to build 300,000 new homes a year by mid-2020s. Issues such as a growing skills crisis, Brexit uncertainty and pressure on resources mean the sector needs to be reflecting on the methods which it has relied on to date. As a result, there has been a shift towards the use of Modern Methods of Construction (MMC), which 40% of our respondents believe to be the next big thing to impact the property sector, followed by artificial intelligence (AI) at 23%.

Perhaps unsurprisingly, given the shift in consumer habits over recent years, 52% of respondents believe that retail property will be the area most impacted by technological factors, up from 32% in 2018.

Diversity in the sector

In recent years, the topic of diversity in the property and construction sector has come increasingly into focus and, undoubtedly, will continue to do so over the coming years. This is of particular interest given the sector has often been accused of falling short in this area for some time. Looking ahead, it is likely that more will be done in 2020 to encourage women to pursue careers in real estate, with only around 14% of the industry currently consisting of women. This is echoed by the sentiments of respondents of our survey, with 58% stating that they think diversity will increase in the sector, and a further 26% saying they are unsure.

UK outlook

As we move towards 2020, it is interesting to look at where investment will be made within the UK. Our report found that the South East was, once again, regarded as having the highest potential for investment (34%) – unsurprising given Crossrail, and its proximity to London, which ranked second (20%). In a change to previous trends in our survey, the North West was cited as a key area for investment over the next 12 months, with property professionals seeing great potential, particularly from the two major cities of Manchester and Liverpool, and the benefit of the upcoming HS2 high-speed rail project, which is a big attraction for developers due to the efficient travel to London that is expected as a result.

It is equally important to consider the types of property which will make for the most attractive asset class for investment in 2020. Our research found that residential (23%) and storage/shed facilities (23%) are viewed as the most investable property types over the next 12 months, demonstrating that there is still appetite for investment.

Despite investment and innovation remaining a key priority in the sector, some parts of the property market continue to experience low growth. Our report highlights that 44% of respondents believe that the regional retail sector is most impacted by low growth, followed by residential property (35%). Perhaps the low growth experienced in some areas of the market has led to the majority of respondents expecting property prices to stay the same over the next six months– highlighting the uncertainty in the market.

While the UK remains an attractive location for investment, the industry is changing, as businesses continue to face new challenges coupled with an uncertain political and economic environment, high taxation levels and a restrictive planning system.

If you would like to read more articles like this then please click here.
  •