Wednesday, 27 July 2011 00:00
Chairman's Blog
Since the ‘banking crisis’ of 2008 we seem to have staggered from crisis to crisis amongst financial circles, whilst the rest of World commerce is slowly getting back to business.
We seem to have staved off the Greeks declaring themselves bankrupt for now but, the banks really still are in a dire state, and although they keep kidding themselves that they will get back to big bonuses shortly, I suspect there is a fundamental restructuring of finance going to happen over the next decade.
The problem for the construction industry is that most buildings rely on some sort of external funding because the sums involved are so large.
Banks around the World generally have too much exposure to property and in any case they are still trying to get back to a situation where they have rather more cash in reserve than they used to so they are quite reluctant to lend on property development.
Getting £100m from a bank for a construction project is likely to be a tricky task for at least 5 to 10 years and quite honestly, even mortgages for a more modest ‘few hundred thou’ are also going to be hard to come by.
However, there are signs that people are beginning to find ways round this problem. There is a lot of money out there!
There are now more billionaires in the World than immediately prior to the 2008 crash, and many companies and corporations, scared by what happened in the crash, have made themselves cash rich over the last 3 years by holding on to profits and not spending on anything but essentials.
The rich people and companies are looking for places to put their cash and funnily enough, they don’t trust the banks to hold it for them anymore. I wonder how that came about?
That’s why there is a residential property boom happening in London at present.
Investors, and more than half of them are foreign, see London property as a good long term investment bet. Canny London developers are taking their proposals for residential tower blocks in London (Transport Zone 1 and 2) straight to Hong Kong for a few weeks of marketing, and then flying back to Heathrow with enough signed up sales (and deposits) to build the scheme out.
Forget going to see the bank manager, this is a really good way of getting things going again.
There are also huge institutions, like the people who hold our pension funds, still very interested in buying good quality commercial schemes. Their problem is that developers are not putting the deals together now that will be presented to them in 3-4 years time. Some of them are by passing the developers and starting to look at their own schemes but some developers are also starting to blow the dust off their Porsches and find ways of funding schemes that don’t involve banks.
Bricks and mortar and property in general have always been a good long term investment. Values go up and down a little bit but, provided you hold on, the value always comes back, with a bit added, in the end. What’s more property is tangible. It’s all very well having £100m tied up in Chinese pork futures. You may make a load of money, but you can end up with nothing but crackling, whereas a good country pile in Wiltshire is always a good country pile in Wiltshire.
So, those of us in construction have to find more imaginative ways of engaging with the funders because people still want to invest in good quality buildings in good locations, it’s just a question of putting the right people together.
One last little cheery fact to bear in mind, since the last recession in 1990 the price of gold has climbed steadily, and everyone is trying to get into gold. If you had put £1 into gold in 1990 it would now be worth £4. If you had put the same £1 into uk residential property in 1990 it would now be worth £5.
Bob Whittington, Chairman, Stride Treglown Ltd, 22nd July 2011.
