The Effects of COVID-19 on the Property and Construction Sector

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Article

09 April, 2020

The challenging times in which we currently find ourselves is also affecting the property development and construction sector and many businesses are seeking assurances from funders, contractors, supply chains and professional support services.

The number of developers and construction firms closing their sites is growing, even though the Government have said they can stay open.

The self-employed contractors and traders received information on a support package last week available to them during the crisis, but this is not available to those that have recently become self-employed.

At the end of last month, the Health Minister Matt Hancock said that construction sites could stay open as long as Public Health England advice on social distancing and safety precautions were followed. This caused some confusion within the industry on what they should do. Some feel only those developing and providing construction support to the health sectors or other critical areas should be continuing to stay open.

However, despite Housing Secretary Robert Jenrick reiterating Hancock's message, many construction firms and developers have taken the decision to close sites to ensure the safety of workers.

From a development funding perspective, the response is mixed with some funders 'remaining open', albeit clearly under review on a weekly and possibly daily basis, and others having paused for new lending. External influences include a spike in demand for investor withdrawals across a number of the Peer to Peer lending platforms and the simple practical and logistical issues around being able to undertake normal operations whilst remote working and the ability for valuers and project monitors to attend sites safely. The bottom line seems to be the application of a common-sense approach for schemes in build and to continue funding whilst progress on site continues, if at all possible. Many developers seem to be taking a natural pause to putting a spade in the ground on new developments, but progressing due diligence so they can be all systems go when conditions improve.

Cashflow will become a pressing issue for many SME developers and contractors and whilst the Government has announced business support via the CBILS scheme this should not be seen as the free handout that many may have interpreted. Participating lenders will still be applying normal lending decisions against their historic appetite for the sector. Equally it is important to understand that businesses will remain liable for the whole loan amount and asset security may still be required. It remains early days, but current feedback is lenders are looking to be supportive and will consider applications for support (whether under the CBILS scheme or not) on a case by case basis. Speak to your Bank Relationship Manager as soon as possible and be armed with the necessary supporting information/ cashflows to present your business case.

Concerns over the practicality of enforcing such guidelines on construction sites and developments have been called into question, with the Federation of Master Builders calling it "almost impossible" and workers taking to social media to express their fears.

With many sites already closed and others falling in line, firms must now hope that they can survive this crisis and that they won't be punished for closing sites in the name of safety.

For more information contact Adam Bromley in our Construction & Infrastructure department via email or phone on 0333 207 1158. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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