British Construction and Property Industries - Assignment Example

Running head: ECONOMIC ORGANISATION OF THE BRITISH CONSTRUCTION AND PROPERTY INDUSTRIES AND THE MAIN OBJECTIVES OF GOVERNMENT MACRO ECONOMIC POLICY British Construction and Property Industries Name: University: Abstract British construction and property industry is being faced with demands to make rapid changes due to changes in procurement strategies, government-led reform initiatives and heightened fields of international competition. These changes are aimed at helping tackle any problems arising from the reforms and to forecast the levels of project success, while attempting to solve problems related to predominance of personal capitalism which imply weak organisational capabilities. An essential role is played by the British Property Federation (BPF) to represent the interest of the construction industry clients to the Government. The Construction Committee represent clients' interest on the Joint Contracts Tribunal (JCT), publishes Energy Saving Guide, review BPF's standard forms of collateral warranty, respond to a range of consultations and managing the secretariat function for a broad-church client body representing the interests of the customer of the construction industry. The property industry is a vital component of a successful economy, and an important route by which a Government can achieve the delivery of many of its cherished policies such as: entrepreneurial success, urban regeneration, social inclusion, environmental improvement and savings and pensions reform. This paper discusses the economic organisation of the British construction and property industries and the government macro economic policy. Economic Organisation of the British Construction and Property Industries British construction and property industries are is being faced with demands to make rapid changes due to changes in procurement strategies, government-led reform initiatives and heightened fields of international competition. These changes are aimed at helping tackle any problems arising from the reforms and to forecast the levels of project success, while attempting to solve problems related to predominance of personal capitalism which imply weak organisational capabilities. The concept of mutual objectives demand that each team thinks while focusing on the immediate objectives, through the process, to the end objectives. Improved efficiency can for example be thought of in terms of cooperation, fast construction can be achieved by avoiding hold ups, critical path programs must be ensured for timely completions, while shared risks are sensibly agreed on. Cost reduction measures include continuous improvement strategies and reasonable profits are achieved through sound forecast and progress prediction. To minimize legal costs, the parties must implement sound dispute resolution procedures and a sense of good public relations can be achieved by being proactive. A prior agreement on the sharing of profits must be in place to facilitate any related procedures. Quality assurance and total quality management offer ways of ensuring a reliable product quality, which is enhanced by the reliable flow of design information and any related cooperation. The basic idea in improving the construction industry is implied therefore as offering tendering on the basis of scrutinized long term affiliations based on clear measurement of prior performance-"benchmarking and quantified measures" and sustained quality and efficiency improvements. 1 A Task Force headed by Sir Egan believes that the way forward to achieving the ambition of a modern construction industry lies in commitment. They believe that: "Commitment from major clients to fulfil their responsibility to lead the implementation of our agenda for dramatically improving the efficiency and quality of construction Commitment from the construction industry to work with major clients to deliver the significant performance improvements that are possible, and offer these to the occasional and inexperienced clients Commitment from Government to create and sustain the environment that is needed to enable dramatic improvements in construction performance, and encourage the public sector to become best practice clients."(The Egan Report, 1998). The Egan report identifies the following problems within the construction industry: The entire construction industry was under-achieving, There existed defects at unacceptable levels, There was a lack of predictability within the operations of the industry, There existed a dire need for customer feedback systems, A lacking in investment in capital, research, development and training, and High levels of dissatisfaction amongst the industry's clients. The report also identified some major issues that needed to be tacked to improve the performance of the industry and this included: Focusing on the customer, Commitment and challenge to output quality, Perfectly integrated processes and dedicated teams, and Commitment to a quality leadership. There has been a significance growth in the British construction and property industries as shown by reports on lease structure on income profile on current leasing. The report is used as an analytical tool that gives one the ability to undertake detailed lease analysis as it has a comprehensive charting capacity. The graph below shows a more in depth reporting on all lease property. 2 (Adapted from 2004/2005 Annual Lease Review by IPD, 2005) There has been a significant growth in the property industry as the tread on number of lease granted has increased significantly as shown in the graph below. (Adapted from Annual Lease Review2004/2005 by IPD, 2005) It is essential to employ experienced professionals for the assurance that the interest of the construction firms is considered first while reaching any agreements. A client guide brings to light the benefits of partnering such as; the achievement of high levels of efficiency and any needed improvements can be provided for by any resulting savings as agreed for by the team, It helps the project teams in the provision of more than normal competence based on the decisions made concerning some specific performance improvement that the project team aims to achieve. 3 These advantages arise from the fact that the merged project teams are given an opportunity to design better, implement more efficient methods of construction, device more constructive ways of undertaking their procedures and effect improved modes of communication amongst themselves. For better management of construction disputes, the design of fitting dispute resolution mechanisms, which are to be incorporated into the contract serves to either help in avoiding the disputes in totality or in quickly resolving any dispute once they arise. Besides stipulating guidelines relating to only the interests of the parties involved, international construction projects demand the consideration of compatibility to international law, politics and culture. 4 Main Objectives of Government Macro Economic Policy In the recent years, British economy has seen the longest period of sustained economic growth for more than 150 years. When it comes to inflation, interest rates, and unemployment, the UK economy is one of the strongest of the larger European Union economies as they remain relatively low. Within the EU, it has a high level of income inequality. In year 2005, the British GDP grew by 1.8 percent as compared to this year where it is growing at 2.3 percent. The slow growth rate was contributed by high price of oil, the easing of house price increases and the subsequent slowdown in consumer spending. 5 UK property industry is represented by three leading organisations namely: British Property Federation (BPF), the Investment Property Forum (IPF) and the Royal Institution of Chartered Surveyors (RICS). They prepared a consultation documents entitled "Promoting More Flexible Investment in Property: A Consultation", which they submitted to the government. 6 There have been booming in the UK Property for the last seven years and some property areas have trebled in value over that period. There are a number of reasons that attributed to the increase in property prices and they include: the growth in property investment, a well managed economy, greater growth, low interest rates, and specifically buy-to-let. In July 2004, the UK property market peaked but had been stagnant or falling in the capital and some other areas until late 2005. Many British residents started worrying about the possibility of house price crash and majority of them predicted the end of a major British property bubble. Nevertheless, there has been strength in the capital in the first half of year 2006 as the property market strengthened significantly. Many analysts revised previously negative assessments of the market and they predicted continued modest growth in prices in the middle of the year. At present time, a house price crash would be very damaging due to debt at record levels. Many economist are now worried due to increased numbers of bankruptcies and home repossessions as they think that a correction in house prices would lead the country into a lengthy recession. 7 The main objective of this consultation was highlight views on how the government can encourage an efficient and flexible property investment market that can be termed to be fair to all tax payers. This launched a formal consultation with the government on the development of a legal and tax structure to meet the government goals and objectives on property investment. It responded to the government barriers in the tax system which might have altered the property investment market resulting to poor liquidity which would have barred small investors from entering the market. This in turn would have hindered progress on a stable and efficient real estate market that would have supported the economic objectives of the government. The government seeks to achieve its objective from the following guidelines: That at least 75 percent of the UK REIT's gross income should come from the real estate related income. That 95 percent of the UK REIT's gross income must be from real estate related sources which should also include other passive forms of income such as dividends and interest from non-real estate sources for example interest rate on bank deposit. More than 5 percent of a REIT's income could come from non-qualifying sources, such as from non-real estate business e.g. marketing and promotional revenue. The second qualifying proportion are proposed to be calculated on a net rather than gross basis as they feel that this is a better reflection of the level of activity within property industry. A gross calculation of non-qualifying income on this basis can result in undue emphasis being placed on activities which are essentially incidental to the property providers' main dealings. The UK REIT's are allowed to hold "taxable REIT subsidiaries" ("TRS") so as to be able to conduct their business subject to the principal qualifications that: The value of the gross assets of all of a UK REIT's TRS's will not comprise more than 20 percent of the value of the gross assets of the parent; and at least 75 percent of the UK REIT's gross assets must consist of real estate assets like direct property or loans secured on direct property. 8 References BBC News (2006): Mortgage approvals Rebound in May, Retrieved on August 17, 2006, from http://news.bbc.co.uk/1/hi/business/5119982.stm BBC News (2006): UK economic growth revised upward, Retried on August 17, 2006, from http://news.bbc.co.uk/1/hi/business/5133626.stm Bennett, J. and Jayes, S (1998): Seven Pillars Of Partnering; A Guide to Second Generation Partnering, Published by Thomas Telford BPF/IPD (2005): Annual Lease Review 2004/2005, IPD Chan, E.H.W (2003): "Disputology" In the International Construction Industry, An ASCE publication. Construction Engineering and Management (2004): Economic Policy on Construction and Property Industry, Journal of Construction Engineering and Management, Volume 130, Issue 6, pp. 357-480. Peace S. and Bennett J. (2000): How to use a partnering approach for a construction project, A Clients' Guide Petrie G. and Donald, Mc G. (1998): The Egan Report Encouraging Partnership in the Development Process, Construction and Engineering Unit. REITS Consultation: The Pan-Industry Response July 2004 (2004): Promoting More Flexible Investment in Property, London, British Property Federation Read More