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Growing number of property sector businesses in significant financial distress

An insolvency firm is warning that a growing number of real estate sector businesses are in significant financial distress

An insolvency firm is warning that the real estate sector of the economy is showing a growing number of businesses defined as being in significant financial distress.

Begbies Trainer’s latest ‘red flag alert’ report, looking at all sectors of the UK economy, reports that in the third quarter of 2018 there was a 2.0 per cent rise in the number of real estate firms registering distress.

In absolute terms this meant a rise from 42,748 real estate firms showing distress in the second quarter of this year, to 43,505 in the third quarter.

At the same time, across the economy as a whole, Begbies reports that there was a one per cent drop in the number of distressed companies between the second and third quarters of this year – showing starkly that the real estate increase was against the trend and signified a sector performing less well than most others.

The situation is more alarming when the third quarter of this year is compared against the same period of 2017.

For real estate there was a 16 per cent rise in the number of red flag alerts – there were 37,519 in the third quarter of 2017 but 43,505 in the same period this year.

This rise was higher than for any other sector of the economy analysed by the company.

Begbies does not break out the real estate sector into component parts, but a company spokeswoman says the housing market is key to wider economic sentiment.

A partner at Begbies Traynor, Julie Palmer said the fading of the summer sun has been accompanied by a reality check as consumers tighten their purse strings, with a 0.8 per cent drop in retail sales from August to September, which included the largest decline in food sales since October 2015.

She said this change, coupled with falling house prices and higher inflation across key essentials such as energy and fuel, have made UK consumers cautious, particularly as economic certainty around the details of the Brexit deal remain stubbornly elusive.

Palmer said that while the headlines have focused on the high street, other ‘bellwether’ sectors such as property and financial services, as highlighted in these figures, are showing worrying signs of increasing distress that needs to be addressed if a spiral towards static economic growth is to be avoided.

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