Problems with access to finance making construction projects ‘unviable’ - SCSI

Construction industry professionals have become less optimistic about the outlook for the sector over the past year, with access to finance and labour seen as particular issues.

Rising interest rates are adversely impacting the viability of projects, the sixth construction market monitor report states, which was produced by the Society of Chartered Surveyors in Ireland (SCSI) in association with PwC.

“Surveyors ranked ‘viability of projects’ as the number one reason for the difficulties associated with raising development finance, followed by access to bank finance/credit and access to equity/venture capital,” the industry group’s president Enda McGuane, said. “According to our members, the hike in interest rates has become a key reason why access to finance is becoming increasingly difficult to acquire. The higher interest rates are affecting exit yields and thus making more projects unviable.

“When you combine these pressures with high inflation rates as well as more localised challenges around the availability of skilled labour and operating capacity, the pressure on feasibility and ultimately the viability of some projects is clear.”

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The SCSI also argues that the Government’s retrofit targets will not be met unless more generous grant aid is forthcoming.

Surveyors cited the availability of finance or lack of sufficient grant funding as the single biggest issue negatively impacting the chances of reaching Government targets to retrofit half a million homes to a B2 energy rating and install 400,000 heat pumps to replace older, less efficient heating systems by the end of 2030.

Four in 10 pointed to labour supply shortages as the main barrier to hitting those targets.

According to Sustainable Energy Authority of Ireland, which is overseeing the retrofitting programme, 8,481 homes were upgraded to a Ber of B2 in 2022, the SCSI said, adding that this amounted to just 1.7 per cent of the Government’s nine-year target.

“Feedback from the survey indicates that the current retrofitting support grant is not sufficient to ease the cost involved,” said Sinead Lew, a partner in PwC’s Ireland Real Estate practice. “It also highlights that the gap between the cost to retrofit and the market value on completion can be challenging. More needs to be done to encourage a wider take-up of retrofitting.”

In terms of potential solutions, nearly half of respondents (47 per cent) said grant funding needed to be improved and simplified while more than one in five listed “increased capital allowances / reduction in VAT” as another viable solution to bridge the gap in costs and increase competitiveness in the market.

Overall, just over 70 per cent of chartered surveyors believe the outlook for the sector remains positive, down 21 percentage points over the past year. Six in 10 say their firms are operating at full capacity while just over half (52 per cent) expect their workload to increase over the next 12 months. However, both figures are down on last year.

A recent report highlighted that the majority of construction companies in Ireland are not planning to invest further in any modern construction methods or emerging technologies over the next five years, with the time and cost involved seen as the biggest inhibiting factors.