What Effects Did COVID Have On The Construction Industry?

With supply chain issues, staff shortages and increasing costs, it’s not surprising that the pandemic played an enormous role in disrupting the construction industry. 

Many construction professionals are still dealing with the realities presented by the pandemic and what these changes mean for the industry’s future. This article reflects on the pandemic and its effects on the construction industry. 

Halting operations 

Project delays have increased the demand for alternative financing options throughout the construction industry, such as development finance. Even more prominent developers with readily available funds to finance their ongoing construction projects through to completion had to reassess their priorities and commitments toward ongoing projects. 

An industry survey of over 900 construction businesses found that 68% of owners had to cease operations due to the impact of the pandemic. 

Decrease in turnover 

The survey also discovered that 72% of businesses reported a decrease in turnover, with 19.37% seeing their turnover decrease by more than 50%. With such a financial impact, fast funds were essential to keep projects alive.

What is development finance?

Development finance can fill the gap between cash outflow and inflow and are therefore a lifeline for construction companies still feeling the impact of the pandemic.

The loan amount your project is eligible for depends on the following factors:

  • The value of the site – The loan amount will depend on the anticipated value once the project is completed. 
  • The build cost – Lenders can offer 100% of the build cost.
  • Gross development value (GDV) – GDV is the property’s final value after the project is complete. The loan to gross development value (LTGDV) is generally 65%, but it’s possible to achieve 100% LTGDV with additional security such as the land.
  • The track record of the borrower or the developer – Lenders typically offer a one-time disbursement for the land or property, but disbursements for build costs are phased. Once the project is complete, you can sell the property and close the loan. Unexpected delays can become a problem, but there’s an easy solution.

In summary

The construction industry has been hit hard by COVID, and the impact is still being felt today. Developers have experienced unforeseen obstacles, schedules disrupted, and turnover reduced. As such, developers are looking for alternative financial solutions to ensure projects can be completed, and development finance is one of those solutions.