Property start-ups finished

Published on Saturday 6 December 2008 10:02

HUNDREDS of newly-created property firms in the Capital are at severe risk of going out of business as the recession takes hold, experts warned today.

Nearly 400 firms that were launched in Edinburgh in 2007 to take advantage of the then-booming housing sector are seen to be at risk of collapse.

And it has been warned banks will either push for administration against those firms that are struggling or, if lending has been given to them with a personal guarantor, entrepreneurs could be forced to pay for their firm's failure.

An analysis of VAT-registered businesses found that the number of Edinburgh-based companies in the real estate, renting and business services sector increased by 385 last year. Business advisers say the vast majority of these were property-related businesses looking to cash in on the market, such as letting agents, construction firms, developers, plumbers, joiners and painters.

But as one of the hardest-hit sectors in the current economic downturn, it is now feared that many of those new firms are at high risk of folding.

In total, there are now 6130 firms operating within the sector in Edinburgh. It accounted for 70 per cent of new businesses created in the city last year.

Martin Gill, Scottish managing partner at business adviser firm PKF, said: "There are so many firms with a lot of money tied up in property. The inability to sell these assets provides very serious cash-flow problems, particularly when banks are putting on increased pressure.

"A huge number of property companies started up on the back of the property boom. Some of these companies will have built up assets that won't have realised any money at all. The question is how long they can keep paying the finance costs."

He said that start-up property development companies at the greatest risk of collapse are unlikely to have been able to generate the level of sales that will give them security – and will now be finding sales hard to come by.

"If you look at Edinburgh, its foundation is property and financial services and a lot of companies service these sectors, so the impact is flowing down," said Mr Gill.

"It is going to be all the more tough in the new year. So many businesses rely on RBS and HBOS, from sandwich shops near their offices to all types of businesses. They don't know what to expect."

The strain on companies is already having an impact on jobs. Anthony Knight, director at recruitment firm Brightwork, said vacancies in business service sectors like plumbers and joinery had held up well in the public sector but "died off completely" in the private sector.

"It is about cutting costs," he said. "All these companies are having to consolidate and save on costs."

Tough times

AMONG the companies with Edinburgh operations in administration are:

&#149 The Pier, retailer, store in George Street.

&#149 Woolworths, retailer, stores on Lothian Road, Raeburn Place, Milton Link, Constitution Street, St John's Road.

&#149 Bowie Castlebank, owns Klick Photopoint (stores on Morningside Road, Ormiston Terrace, Deanhaugh Street, Great Junction Street)

&#149 AAim, property fund behind the George Hotel

&#149 Gregor Shore, developer of Platinum Point and Granton Marina

&#149 MFI, retailer, stores at Seafield Road, Straiton Mains, Earl Grey Street.

&#149 MicroEmissive Displays, technology firm (based at West Mains Road)

&#149 Heritor's, property fund, West Silvermills Lane