Times are changing

The global recession had hit everyone from individuals to banks to corporate businesses. And, in view of the many megaprojects in the Middle East, the construction industry is having a tough time of it, suggests Hazel Young.

“It is important for construction companies to find ways to fund projects and sell quickly; having more options available for buyers is a good marketing tool”
-Hazel Young

There was immense vision, investment and construction in the Middle East until the recession arrived. But, with banks closed and no longer able to provide bank guarantees, they were unable to provide the necessary loans for companies to continue building, let alone think about funding future projects. So what impact has this had on the construction industry? Firstly, as housing projects no longer have a buyer as they cannot afford to buy, the construction company is then stuck with an unsold development and therefore cannot move onto the next phase of the project or a new venture. To address this problem, the construction company is looking at different ways for people to finance or be able to afford a house. This also seems to be the case for commercial developments, and as such developers are looking for new ways to be attractive and affordable as well as look at finance options available to buyers. But why must the construction companies arrange this? Well, it is important for construction companies to find ways to fund the projects and sell quickly; having more options available for buyers is a good marketing tool. And if the construction company is planning a new development, they need deposits on the development properties from buyers in advance to cover the cost of the development, followed by the balance at completion and as each unit is completed the final payment is made making the construction company cash flow more efficient.

The Middle East with its traditional family businesses is now threatened by outside competition, and the recession. The whole family concept of business must now be completely reviewed, from top to bottom as tradition looks to compete with global market. With leadership the most important part of any business, the eldest son may not be the right leader material so the business may well need to look to bring in someone from outside. The next stage is to look at the structure of the business and have strategies in place, from marketing to finance.

Financial planning will need to be reviewed and research required as to the different types of funding that can be made available for your projects. However, the construction industry have one major advantage: it will have assets in the form of land and development that can be sold at end of day. Private placement programmes, are excellent way to raise money whilst earning money, from the investment in the programme, at the same time. Bank guarantees are also useful as well as a whole array of other available. And if you don't qualify? Consider joint venture partners and share profits.

It is vitally important to spread the risk, and by choosing construction projects that are essential, like housing, as the basis of the business. The construction company will then be able to consider a bigger project as a long-term future plan.

Hazel Young has a background in Accountancy and Enterprise Development, and was educated at Masters level in marketing/management/female entrepreneurship together with business mentoring.