Business Confidence in the Property Sector Slumps as House Price Dip Takes its Toll
Confidence levels among businesses in the property sector has dropped for the first time since the beginning of 2010, states the latest ICAEW/Grant Thornton UK Business Confidence Monitor (BCM). According to BCM, which tracks the confidence levels of UK finance and business professionals, in Q4 2010, only 43% of those in the property sector are more confident in the economic prospects facing their organisation over the next 12 months, compared to the previous 12 months. This is down from the 57% who responded in Q3 2010. 26% are less confident about the coming year (14% Q3 2010).
Overall, UK business confidence fell sharply in most industry sectors this quarter with a significant drop in Manufacturing and Engineering (+34.6 last quarter to +16.5 this quarter). The Property sector recorded a Confidence Index* of +8.3 points in Q4 2010, a significant drop from +25 in Q3 2010. The size of the drop may be in part due to last quarter’s Index being buoyed by optimism that the recession, and its negative impact on house prices, has passed. However continued tight credit is likely to have contributed to the dip in confidence as the number of mortgages approved each month remains low. The national Index also fell significantly from 21.5 in Q2 2010 to 11.9 this quarter.
Clare Hartnell, Global Head of Property at Grant Thornton said: "The recession saw property companies tighten up their corporate structures to increase efficiency and enhance their chance of survival. These newly svelte companies are now battening down the hatches to ride out the rest of the recession, particularly in the face of falling house prices.
"Access to finance also remains difficult and, as a result, house prices cannot increase as this naturally dampens the level demand in the market. Consequently the mood in the market is cautious and confidence for the next twelve months amongst property companies has diminished."
Property businesses expect relatively weak financial performance over the coming 12 months. Turnover is expected to grow by 1.8% and gross profits by 1.5%. In the pre-recession era expectations for annual growth of 5% - 7% were typical.
The weakened Confidence Index across the economy comes as BCM also indicates a weakening in customer demand. 44% of businesses across all sectors report customer demand as a greater challenge than 12 months ago, up from 37% in Q3 2010.
Among property companies, the proportion reporting this trend has risen from 26% in Q3 2010 to 36% this quarter.
For further information please go to icaew.com/bcm
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Notes to editors:
1. The Business Confidence Monitor surveyed 92 property companies.
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3. As a world leading professional accountancy body, the ICAEW provides leadership and practical support to over 134,000 members in more than 160 countries, working with Government, regulators and industry in order to ensure the highest standards are maintained. Our members provide financial knowledge and guidance based on the highest technical and ethical standards. They are trained to challenge people and organisations to think and act differently, to provide clarity and rigour, and so help create and sustain prosperity. The ICAEW ensures these skills are constantly developed, recognised and valued. Because of us, people can do business with confidence.
4. The ICAEW is a founding member of the Global Accounting Alliance with over 775,000 members worldwide.
5. The Business Confidence Monitor (BCM) survey began 2003.
6. 1000 Chartered Accountants, including 92 in the property sector, responded to a telephone survey during the period 28 July – 21 October 2010. Businesses were categorised in terms of size (no. of employees), region and industry sector. Regional classification used was ONS Government Office Regions.
7. The BCM survey covers over 1% of economic activity both for the UK as a whole and for different UK regions. This assures our data captures accurately the mood of UK senior business professionals.
8. *Business Confidence Index methodology – The Business Confidence Index is calculated from the responses to the following: “Overall, how would you describe your confidence in the economic prospects facing your business over the next 12 months, compared to the previous 12 months?” A score was applied to each response as shown below, and an average score calculated: Variable Score Much more confident +100 Slightly more confident +50 As confident 0 Slightly less confident -50 Much less confident -100 Using this method, a Confidence Index of +100 would indicate that all survey respondents were much more confident about future prospects, while -100 would indicate that all survey respondents were much less confident about future prospects.
9. cebr is an independent economics consultancy. Since 1992, cebr has been at the forefront of business and public interest research. It provides analysis, forecasts and strategic advice to major UK and multinational companies, financial institutions, government departments and agencies, trade bodies and the European Commission.
More at www.cebr.com.