BELFAST BRIEFING:Some firms in the already struggling local construction sector face a bleak future
NO ONE is saying it out loud yet but it is a good bet that many estate agents in Northern Ireland may be thinking that it might just be time to shut up shop and find another line of business.
Forlorn “for sale” signs outnumber Christmas trees in some housing developments. According to the latest housing market survey today from the Royal Institution of Chartered Surveyors, house sales are at “historically low levels” and are set to plummet further over the next three months.
It is a grim prospect for homeowners and potential property sellers but a virtual death sentence for some firms in the already struggling local construction sector.
Every week brings a fresh roll-call of construction firms and other construction-related businesses facing new difficulties. Some of the biggest employers in the local industry are failing to ride out the recessionary waves that have already sunk well-established firms.
No one – from the award-winning Holywood-based, low-carbon specialist building firm Sky Developments, to the Belfast building group NMC – has developed an immunity to the downturn.
The slump in the local construction sector has exposed just how highly geared many property firms, even the relatively small players, were during the height of the short-lived boom in the North. A recent administrator’s report on one failed Northern Ireland-based property group revealed that it owed a single bank £42.5 million.
The Co Down-based Network Trading Group went into administration in October. It had a portfolio of properties across Down and Antrim, but today these properties are in all likelihood worth less than the value of the company’s bank loans with Bank of Scotland (Ireland), according to the administrator.
The bank may be out of pocket but the real victims in this case are likely to be the people and businesses in Northern Ireland to which the Network Trading Group owes money.
Unsecured creditors are owed in the region of £124,000 and the administrator is not hopeful that these creditors will get their money back.
Who is to blame?
Is it the banks’ fault because they let a company like the Network Trading Group borrow £42.5 million or is it just a case of bad luck or timing because the market crashed in Northern Ireland?
Either way, it is not going to help the unsecured creditors get a penny of what they are owed.
The blame game may not be very lucrative but it is one that many property groups and construction firms in the North are happy to play at the moment.
Even companies in good financial health and currently enjoying strong investment returns are looking for someone to blame.
Take, for example, Belfast- based PBN Property, a major player in residential and commercial development from Stormont to Glasgow. Its latest annual report shows that the company has been forced to “mothball” certain projects because it was unable to secure financing from major banks.
PBN Property says Irish-owned banks, in particular, were not in a position to “take forward even the most profitable development schemes” pitched to them. This put the Belfast company in the position where it had to rely on its own cash reserves and the asset management of its own commercial property portfolio “to fund the ongoing working capital and costs of finance”.
Despite being one of the North’s most successful property development groups of late, PBN has had to stall some projects until it is able to secure new finance.
If successful companies such as PBN, with a strong track record, have difficulty getting money out of banks to finance viable projects, it does not bode well for other firms in Northern Ireland.
The Belfast company has also revealed in its annual report that its loans with Bank of Ireland are scheduled to be transferred into Nama. PBN Property is likely to be the first in a long list of development companies in the North who will have no choice but to embrace Nama with open arms.
