As the country enters into “Lockdown two” on November 5th, the recession is set to deepen. The furlough scheme — which has kept millions of people employed since April — has been extended until December 2nd when the government intends to ease restrictions, but some experts warn that unemployment could hit 3 million people in the UK by Christmas.

Although plans to end mortgage holidays on October 31st were scrapped, the millions of people who took advantage of deferred payments when these schemes first began in March will soon reach the new six-month holiday limit and have to resume full payments — those who have yet to request deferments are still entitled to the full six-month holiday. Add to this a growing number of businesses closing their doors for good — resulting in more job losses — and the outlook is troubling.

What does the current economic climate mean for property developers, and how can they ride out the storm and thrive in 2021 and beyond?

What Does Lockdown 2 Mean for Developers?

Unlike the first lockdown in March, the housing market will stay open during the second lockdown. Developers will still be able to obtain the supplies they need, as businesses such as builders’ merchants will remain open, work can continue on development sites and tradespeople will be allowed to enter properties. Provided government guidelines on safe working during COVID-19 are adhered to, housing developments can continue as planned.

It is unclear whether showrooms fall into the “non-essential retail” category, but if they do have to close, developers have a wealth of technology to support online viewings and virtual tours to help them attract buyers and reach sales targets.

Strategies for Surviving and Thriving during the Recession

Historically, the property and construction industries are the worst hit during a recession. In the last major financial crisis in 2008, eight construction companies went insolvent every day in the last quarter of the year. However, some developers are able to adapt and survive the harshest of economic downturns with apparent ease — how do they do it?

Act Fast to Reduce Overheads — developers must assess the current economic climate, evaluate their finances and quickly develop a strategy that will help them stay afloat. This means cutting non-essential costs and redirecting the budget to investments that will boost sales and profits. Reducing staff, pausing employee development, stripping operating costs to the minimum, re-negotiating prices with contractors and selling off project stock are all options to consider.

  • Focus on Short-Period Development Projects — in a volatile economy, short-term projects are easier to control and less vulnerable to sudden changes that could cause delays and lost sales. 
  • Improve Employee and Performance Management — a recession is stressful for business owners and their employees. Effective management is essential to ensure that staff members have a reasonable workload, receive the support they need, stay informed of changes and remain productive.
  • Re-Assess and Re-Define the Long-Term Business Plan — it’s impossible to predict when a recession will end or how the economy will be changed in the long-term. The property industry — and all industries — will evolve under the pressure of recession, and developers must ensure that their long-term plans, strategies and goals align with the changing landscape. Introducing diversity and flexibility is one example of a strategy that could protect a business long-term — lending may dry up for one type of property during a recession or you may need to consider renting out a development instead of selling to maintain an income. 
  • Add Value for Customers — as part of your long-term business plans, review your current offer and identify any gaps in your service. Can you improve the developments you offer? Are there services you don’t offer that could give your development a competitive advantage? There will be a smaller pool of potential buyers during a recession, as many would-be buyers are forced out of the market by job losses and pay cuts. While it is crucial to cut costs where possible, creating a unique selling point that sets your development apart from the competition will help you to achieve a larger share of a diminishing market.

According to research by consumer group Which?, buying and selling a house is one of the most stressful life experiences. Focus on delivering exceptional customer service that removes the hassle and allows people to realise their property dreams. For example, partner with a specialist house part-exchange provider so that your customers can sell their current homes and buy your new-build properties in one straightforward transaction.

A recession is challenging for businesses and consumers. Rising unemployment and a growing number of businesses filing for insolvency are almost inevitable. But property developers that are proactive, creative and keep up-to-date with changes in the economy and the industry can survive and thrive.

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Daniel Peacock.

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