2014 Japan Tax Hike and Effect on Small Construction Firms

Just as a person may buy a brand new car once in 5 or 10 years, houses and land are not usually items that are bought regularly by the same consumer, or on the fly. The average person may or may not ever be able to afford to purchase his own home without an extensive loan.

So what happens when it is announced that there will be a 3 percent tax hike by April 2014, and a further 2 percent by October 2015? Well, if history is any clue, there will be many folks who will be looking to close deals on high-cost purchases such as houses, land, and even cars.

When the cost of a purchase numbers the 10s of millions, a 3 or 5 Japanese Moneypercent increase can be substantial! This is enough for many folks who were toying with the idea of buying a house within the next 5 or even 10 years, to fast-track that decision before the coming tax hikes.

The problem with this is that there are only so many of these people who are in the position to buy houses in a given year. So you can imagine what would happen when 5 or even 10 years worth of home purchases are made within a single year. Sure, construction companies collectively will make that many more sales.

But though the larger construction firms with a near-indefinite sub-contractor pool will make a killing, smaller firms won’t be able to accommodate such large and sudden increases in demand. Without a large pool of available and capable workmen with which they can fill this void, small firms will simply have to turn down contracts.

The primary contractors will then be forced to pass the excess contracts onto other construction firms and individuals, who will then begin taking a share of the overall contracts. But the biggest problem for smaller firms comes after the buying spree is over and gone. Their primary contractor who, prior to the surge, was guaranteeing them a certain number of contracts, now must consider the other firms as well.

The question now arises as to whether or not there is enough to go around. What are these smaller firms to do, if they hope to survive these vicious tax hikes? Well, there are a number of things they can do.

Cultivate and secure a larger workforce. This is the most ideal, but also an “easier said than done” type situation. A workforce needs to have incentive, also known as stable work with the potential for a good income. But most efficiently-run companies are already tuned in terms of workforce-to-work ratio. This means that taking on and training a larger workforce will of necessity, require a larger number of contracts.

Cultivate long-lasting business relationships built on trust and friendship, rather than only convenience and luck. This will not always be enough to keep you in the game, but you will find that many businessmen place high importance in people they can trust.

Establish partnerships with other similar, like-minded firms and brainstorm ways to work together to keep each other afloat.

But after all is said and done, many construction firms will feel the cold wind of recession after this initial surge in housing purchases passes. And when I say “feel the cold wind”, I don’t mean they’ll simply button up and brace themselves. Many smaller firms will undoubtedly cease to exist after the inflated demand gives way to the inevitable housing recession.

Additional Reading:

Japanese Rush to Buy Homes Before New Tax Hike Kicks In

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