Credit risks heighten in construction sector

Portugal’s construction sector, along with the sector in the rest of the world, is facing fierce competition, slashed profit margins, delays in payments from public purchasers and high failure rates from companies according to a recent report by Crédito y Caucion.

“The long payment delays, cash flow problems and financial weakness faced by small construction companies in the building sector is becoming a problem in almost all markets,” says the report.
The construction industry continues to be a cyclical sector whose income is directly linked to the economic growth in a given country reports the Portuguese online news service Diário Imobiliário.
“The risks of a slowdown in world economic forecasts which could negatively affect investments and confidence in all markets, can affect the results of the construction sector in many countries,” the Spanish report adds.
In Spain, the report predicts that growth in the Spanish sector will slow in 2020 and 2021 in tandem with a falloff in economic growth.
The risk of credit default and lack of liquidity has increased, especially in the residential construction segment within a context of falling margins, strong competition and uncertainties to do with the evolution of sale prices and demand.
The average waiting time that construction companies have to wait to get paid in Spain is high — around 100 days.
The report stresses that default and bankruptcy levels have been increasing since the second half of 2019 and are well above other activity sectors.