Resisting the economy
Singapore, 26th November 2012
It is interesting to see and understand how the economy impacts on our projects. I am sharing from my personal observation, not sure if it is representative across the board…with the economy under pressure in all corners of the world we find the projects under pressure as well. The world is interlinked nowadays and economic woes in Europe or elsewhere do affect the economy across the globe. Purchasing powers decrease, as a result exports decrease and as a result revenues decreases…a simple chain reaction. So companies who make their money in selling or should I say exporting, products to economically challenged areas see a decrease in their profits and if that is the cash that is used for new developments (the projects for which we are bidding for or contracted to do work for) will see a slow-down, regardless if the economy in the actual country of the project is doing economically well.
Projects that require the developer to finance the building (cash/loan) will be under much more pressure than projects that are so called ‘self-financing”. For instance, in the hospitality sector the financing is mostly done by loans or investments. But in the realty/ residential sector the developments are mostly financed by pre-sold units or houses. The potential buyer has to outlay cash first to secure his plot or unit, which means the developer gets his financing upfront without any liabilities (other than having to build and deliver the project of course). So the economic risk is much less. One of my clients in India who is in some financial trouble, recently disposed of all his hospitality projects and is now concentrating fully on the development of their residential projects…telling, right?
The other economy resistant projects are mostly the government supported and financed projects. Regardless of spending cuts, budgets (we all pay taxes don’t we?) are set aside each year for this and the more the economy is in dire straits, the more government tend to support the economy by initiating or fast tracking projects. Understanding a little bit how the economic forces drive our project world can be useful in planning ahead!
Light Watch 3-183: Now here are some interesting stats. Barclay’s bank has come out with a so called skyscraper index which shows the link between the sky scraper boom and economic crisis! Even more, not only are more sky scrapers build in times of economic crisis, it also seems that the higher the sky scrapers the deeper the economic crisis! Go phantom that!