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BDO report: it’s going to get worse

Insolvencies among property- and construction-related businesses are set to rise, reflecting falls in housebuyer transactions and subsequent declines in demand for construction, repair and maintenance services, figures from accountant BDO Stoy Hayward show.

An extract from the BDO Industry Watch report, published earlier this week, reads: “The real-estate and construction industry will feel the full force of the housing market slowdown. As transaction numbers and house prices are set to fall in 2008, so will demand for construction, repair and maintenance.”

Researchers expect the numbers of property and construction-related businesses encountering financial difficulties to increase to 2,630 and 2,831 in 2008 and 2009 respectively, up from 2,354 in 2007.

They believe the challenging economic climate would be felt more keenly among small- and medium-sized companies, increasing business failures for the industry as a whole. “With mortgage approvals down by 43 per cent year on year in April and the expected decline of housing transactions of up to one quarter from 2008, small contractors are particularly exposed,” another extract said.

However, any excess capacity released as result of the downturn in the private residential sector could be absorbed through the pre-Olympic effect and big-build projects such as Crossrail, the researchers said.

The report predicts that business failures will peak at 2,958 in 2010, after which the market will begin to pick up and construction-related activity will gradually recover during 2011 and 2012.

Shay Bannon, BDO Stoy Hayward business restructuring partner, said: “With the number of business failures expected to decrease from 2010, there is light at the end of the tunnel. But until then companies need to batten down the hatches and put in place some tactics to weather the storm over the next 18 months.”

The latest Industry Watch report anticipates that business failures for the UK will reach 19,124 over the next two years.