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The construction industry is having to balance the safety of their employees and families with the struggle of maintaining some sense of normalcy through the COVID-19 pandemic. Businesses are reducing on-site teams to allow for physical distancing. The construction pace has slowed as companies use rotating teams to minimize the number of people in contact with each other.
We also see significant steps being taken by those in the realty, new home construction and renovation segment of our economy. Realtors have suspended all open houses and private appointments include strict hand sanitation practices. Open houses are conducted at best on a virtual basis. Sales centres are either completely closed or regulating the number of people permitted in the building. Renovations have come to a complete stand-still.
New home builds are delayed due to the slow down in the supply chain. In light of the potential implications on new home construction, Tarion, an Ontario new home warranty provider, has recently issued an advisory to new home buyers and builders as to the impact of COVID-19 on the industry.
Financial institutions have been less clear as to the potential impact to interest rates on mortgages for new and renewing applicants. Many financial institutions have advised their customers that mortgage lending rates may increase rather than decrease as a result of COVID-19. Canadian banks are anticipating a rise in mortgage default rates as unemployment rises and economic conditions continue to be uncertain. Applicants’ income situations continue to be challenged and certain incomes, like employment insurance, do not qualify as earned income for mortgage applicants. Additional scrutiny and attention is being given to mortgage applications that were previously approved.
The real estate industry embraced a promising start to 2020, with capital markets surging to unprecedented heights and the real estate market demonstrating strong growth demands. New single-family home sales in February 2020 in the Greater Toronto Area (GTA) were up 228 percent year over year, eclipsing the sales peak of February 2004. Condominium prices in the GTA rose 21.3 percent in February 2020, when compared with the prior year, according to the Building Industry and Land Development Association (BILD).
Home builders are now strategizing how best to meet the needs of their customers while preserving the health and welfare of their employees and business. The following are some strategies that may assist in this process:
Maintaining cash flow through the crisis
A full understanding of your cash flow situation for the next 13 or more weeks is critical for determining the funding needs of your business. Given the current level of uncertainty, several scenarios will need to be developed to increase working capital, improve order to cash processes and determine quick-win solutions that can be implemented immediately.
An undertaking to assess vendor and customer engagement strategies is required. Identify which customers and vendors are critical accounts. Specific procedures can then be created to deal with strategic versus non-strategic partners.
Businesses should consult their tax advisors as to the necessity of paying corporate income tax instalments for the balance of the year given that income and profitability is projected to be significantly lower than 2019.
The federal government has announced many programs to allow for deferring the payment of corporate income taxes, corporate income tax instalments and GST / HST payments. These deferral mechanisms may assist with resolving temporary cash flow needs of business owners.
To further assist with temporary cash flow needs, the government, the Business Development Bank of Canada (BDC) and Export Development Canada (EDC) have launched new small and medium sized enterprise loan and guarantee programs that will provide up to $40 billion in additional lending. The programs are as follows:
Maintaining corporate profitability and revenue growth
We will get through the pandemic and there will be a resurgence once this crisis is over. Meeting the pent-up demand will be the next challenge as businesses will need time to return to pre-pandemic levels of supplies and staff. However, for 2020, the focus should continue to be on profitability and revenue targets; different actions may be considered in order to optimize performance in the short term.
As several federal government programs have been announced to support businesses and workers, a good place to start is with an assessment of labour requirements and staffing levels. The following programs may provide assistance with retaining your workforce:
In addition, builders who must temporarily lay-off staff due to the COVID-19 impact on their business may refer their employees to other programs for financial assistance. The Canada Emergency Response Benefit (CERB) is a support program for individuals who have stopped working due to reasons related to COVID-19. The CERB is a temporary program providing $500 per week for a maximum of 16 weeks. Applications can be made through the CRA, online or by telephone. Payments received under the CERB will be included in the recipient’s taxable income.
Strategies and tools to help your company navigate the coronavirus crisis, stay resilient and take the next steps towards recovery.
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