Home    Subscribe    Contact    Login

Mitigating Financial Risk in Construction

by archi (follow)
http:/ www.weekendnotes.com/profile/258238/
Business (100)      Management (27)      Strategy (17)      Finance (14)      Planning (13)      Taxation (2)     
The rise in GST rate in Australia to fifteen percent is expected to increase the costs of goods and services by a huge margin. From education costs to prices of essential commodities, Australians are set to be hit hard by price increases in the coming days. One of the industries likely to be most affected by the increase in GST in Australia is the construction sector. Costs of site acquisition, as well as those of building materials, are expected to go up. Dwelling investment will face a major slowdown as a result. This decline is likely to be seen not only in the construction of new homes, but also in the alteration or addition of components in houses. The increase in the rate of GST tax, therefore, is expected to present a previously unforeseen financial risk to construction in addition to the other common risks that face project financing.



Typically construction costs, especially of big projects, are usually met through a construction loan. Many banks that are involved in financing construction projects usually do not include the GST tax in the construction loan process because it is considered to be a self-liquidating. Thus, financial managers have to think of how to finance this tax to prevent funds from running out before construction is completed.

According to this article from Holden Capital, one of these options would be to discuss with the lender how they would like to deal with GST that is paid on acquisition of property. Some financiers would prefer that one cater for the tax from their money .Others, on the other hand, would be willing to offer an excess amount to fund this tax. However, they require that one requests for a refund, and this would be used to reduce the initial loan.

On mitigating tax costs incurred during the development phase of your project, same as on acquisition, it is important to discuss with the financiers the available options. Some may require a construction financial manager to cater for the tax from their pocket. Others, however, will provide the money after one has paid the tax if they claim a refund. Others have an overdraft facility that caters to GSM tax and will refund money used by a developer on tax at the end of every month. Also, the lender may have a project finance facility that incorporates GST. The claims for the first two months will have the tax included. After that, the claim will include an adjustment for the tax equivalent to the refund that would have been claimed by the developer in the two months preceding.



Apart from an increase in GST tax rate, other factors that might pose a financial risk to developers in Australia are environmental and social disturbances. These would bring construction to a halt. In doing so, it would be impossible for the developers to obtain the revenue they were expecting. Consequently, they would not be able to offset the loan balance. Hence, such factors must be controlled to prevent financial loss from occurring. Financial managers can mitigate this risk by first of all researching on potential social and environmental factors that could threaten the project. After doing so, they should make an appropriate plan on how to keep such factors at bay. For instance, if the project has the potential of facing opposition from the area residents, it would be impossible to continue constructing peacefully. So, it would be of utmost importance to find ways of solving their grievances before embarking on the project.

From rising GST rate to social and environmental factors, a myriad of challenges exists that could pose a risk to keywords: construction finance. Troubleshooting these factors and planning ahead is the only way that a financial manager can keep financial risks at bay.

Image Resource: Pixabay.com

Category
#Business
#Management
#Strategy
#Planning
#Finance
#Taxation
I like this Article - 1
[ print friendly ]
More Articles by archi
One way in which a company can increase its profits is by offering great customer service
4 likes
Opening your own cafe and coffee shop is a major undertaking, but it's worth it if you love coffee
1 like
When you start a business, you definitely hope to get profits from the initial capital that you in...
3 likes
Don't make a rookie mistake: inadequate or poor signage has driven many businesses to a quick an...
1 like
Relocating a business can be a Herculean task
1 like
in atmospheres where they feel comfortable
3 likes
view all articles by archi
Articles by archi on Other Hubs
Without a question, people gravitate towards those who are more physically attractive
157 views
It's common for people to ignore issues with their feet, but taking care of your feet is important f...
1 like
ID: 41597
[ Submit a Comment ]
Trending Articles
In the excitement and flurry of launching your first startup, getting on top of taxes can be a steep...
1 like
When starting a business, it is hard to gain exposure, which is essential to make money
5 likes
Many people who have worked for larger corporations revel in the idea of starting a small business
5 likes
So, you want to run your own business but you fear giving up that “perfect” job that keeps the bills...
6 likes
There is a new “buzz” in the air – having a business that costs next to nothing to set up, working m...
2 likes
Rina Chia is the %%'Business Boss'%% behind Take 2 Markets, an innovative concept giving ladies the ...
7 likes
Whether your business website sells a product or service or is simply an online space which explains...
7 likes
Many people dream of being their own boss, having the flexibility to work whenever and wherever they...
1 like
Unless you have been hiding under a rock, you have no doubt heard people talk about "Social Media"
7 likes
Kate Iselin, a female entrepreneur with a flair for fashion, design, feminism and current affairs, s...
7 likes
Categories
Featured on Other Hubs
 
Copyright 2012-2017 On Topic Media PTY LTD. ABN 18113479226. mobile version