renovation projects – Michmutters
Categories
Business

Qld Hutchinson building boss warns more construction companies will fold

One of Australia’s biggest building bosses has issued a sober warning about the state of the construction industry with expectations many more businesses will collapse in coming months.

The chairman of Queensland construction company Hutchinson Builders, Scott Hutchinson, put it bluntly.

“I bet more builders go broke in Australia,” he told Australian Financial Review.

Mr Hutchinson blamed the way Australia’s construction system worked, with most of the onus placed on the builders themselves rather than developers.

He explained how developers tried to attract customers to their projects with competitive deals with little understanding of the very tight margins that builders had to fulfill to turn a profit.

Construction companies mostly have to oblige these developers as there is no shortage of builders but there are limited projects out there, Mr Hutchinson said.

Developers also can take on clients with very little financial stake while builders bore the brunt of the risk.

They [builders] will roll the dice with their fingers crossed every day of the week,” he said.

There’s no denying it, Australia’s building industry is in crisis; many companies have gone into liquidation so far this year amid rising costs for construction materials but also being stuck in fixed contracts, driving them out of business.

Two months ago, news.com.au spoke to Russ Stephens, co-founder of the Association of Professional Builders (APB), who warned that the industry was in dire straits with as much as 80 per cent of building firms haemorrhaging money.

More than half of the estimated 12,000 construction companies in the country are reportedly trading at a loss, with many on the brink of collapse.

And those who work in the industry are having regular mental breakdowns and crying to colleagues and family members as the pressure to survive mounts.

“[Building firms are] losing huge amounts of money,” Mr Stephens said.

“Eighty per cent of builders in Australia have lost money in the last 12 months. That’s horrific,” he said.

He said around 50 per cent of building companies wouldn’t be able to pay back all their debts at once if creditors asked for their money back at the same time.

“About 25 to 30 per cent [of these companies] can’t pay their bills on time,” he said.

An industry insider told news.com.au earlier this year that half of Australia’s building companies are on the brink of collapse as they trade insolvent.

Overall, the construction industry has been plagued with a spate of collapses caused by a perfect storm of supply chain disruptions, skilled labor shortages, skyrocketing costs of materials and logistics, and extreme weather events.

Earlier this year, two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, went into liquidation.

Victorian construction companies in particular have been hit hard.

Two building companies from Victoria were casualties of the crisis having gone into liquidation at the end of June, with one homeowner having forked out $300,000 for a now half-built house.

Then there have been smaller operators like Hotondo Homes Horsham, which was also based in Victoria and a franchisee of a national construction firm – which collapsed earlier this month affecting 11 homeowners with $1.2 million in outstanding debt.

It is the second Hotondo Homes franchisee to go under this year, with its Hobart branch collapsing in January owing $1.3 million to creditors, according to a report from liquidator Revive Financial.

Snowdon Developments was ordered into liquidation by the Supreme Court with 52 staff members, 550 homes and more than 250 creditors owed just under $18 million, although it was partially bought out less than 24 hours after going bust.

Others joined the list too including Inside Out Construction, Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.

The most recent collapse was NSW building company Willoughby Homes, which went into voluntary administration last week, leaving 44 homes in limbo.

News.com.au also raised questions about Sydney-based Ajit Constructions on Thursday after the builder hadn’t commenced construction for months, cleared up its offices without telling customers where it was going and disconnected its phone line.

There are between 10,000 to 12,000 residential building companies in Australia undertaking new homes or large renovation projects, a figure estimated by the APB.

A healthy construction industry is vital to a strong economy and ongoing growth, with the sector accounting for the employment of almost 9 per cent of Australian workers and 7.5 per cent of Australia’s GDP, according to CreditorWatch.

– with Sarah Sharples

.

Categories
Business

RLB forecasts emerging construction cost inflation will ease in 2023

The rate at which construction costs are soaring – contributing to a spate of high-profile building company collapses – will ease next year, according to new forecasts from global consultancy firm RLB.

Construction cost inflation in Melbourne is forecast to halve, dropping from 8 per cent this year to 4 per cent in 2023, and in Sydney it is predicted to slow from 6.9 per cent to 3.9 per cent.

An even bigger decline is forecast for the Gold Coast with cost growth dropping from 11.5 per cent to 5.5 per cent. Similarly, in Brisbane it should drop from 10.5 per cent this year to 5.1 per cent in 2023, according to forecasts published this week in RLB’s second quarter 2022 International Report.

RLB research and development director Domenic Schiafone said the expectation that costing will ease through next year was due to curtailing demand, likely to be caused by inflationary pressures.

“This easing of demand should allow manufacturing and logistics to get back to ‘normality’ or pre-Covid levels,” he said.

“The easing of demand should also see a softening of material prices with the high level of ‘demand-led price premiums’ reducing.”

Association of Professional Builders co-founder Russ Stephens, whose clients are residential home builders, agreed to escalate costs could halve next year, but off a much higher base.

He said the cost to build a residential home had increased a lot more than non-residential or commercial builds due to the larger percentage of timber used, and that temporary price hikes created by supply and demand were not reflected in the reports we were seeing.

Australia’s typical house build cost has soared more than $94,000 in 15 months, according to figures revealed in analysis by the Housing Industry Association and News Corp Australia earlier this month.

The national inflation rate hit 6.1 per cent in the year to June with new dwellings and automotive fuel the most significant contributors, new figures released by the Australian Bureau of Statistics this week showed. New dwellings were up 20.3 per cent.

Warning to Australians wanting to build

While construction cost inflation is expected to ease sometime next year, in the meantime the pain will continue.

Mr Stephens said because costs were increasing so quickly, consumers needed to be aware prices quoted for builds would not last long.

“If they’ve had a price quoted that is older than 30 days they should expect to have that price renegotiated,” he said.

He also said consumers would see more builders including rise and fall clauses, also known as cost escalation clauses, in contracts.

“It gives the ability for a builder to pass an increase in cost of materials on to the consumer,” Mr Stephens explained, adding it was common in other countries but Australia didn’t typically use them.

“What I would say to consumers is that’s not necessarily a negative thing because if the builders don’t put those clauses in they’ll have to put more contingency in to the price to protect themselves against potential increases.

“So rise and fall clauses are probably a good thing for consumers because it means they will only pay the cost of the increase rather than an inflated prediction of what increases might be, especially as we’re seeing evidence now that the increases will start to slow down next year.”

Factors contributing to the construction industry crisis

The construction industry is facing challenges so great that high-profile building companies are dropping like flies.

Mr Schiafone said fragmented supply chain issues were not resolved and labor shortages across the nation have continued as a result of the pandemic.

The consultancy’s report noted lead times for some products from overseas were currently

16 to 20 weeks, when traditionally they were half that at eight to 10 weeks.

Additionally, the need for construction labor and materials after recent flood damage will enhance existing shortages across the country, he said.

Mr Schiafone said higher fuel prices, increasing power costs and timber shortages were all symptoms of the war in Ukraine and were likely to linger for some time yet.

RLB global chairman Andrew Reynolds said significant cost escalation, global delivery uncertainty, aberrant weather events causing significant construction delays, and labor shortages were common challenges in the industry across the world.

Failed building companies

The latest company to collapse was prominent Melbourne apartment developer Caydon earlier this week, blaming “one difficult market situation after another”.

The next day, on Wednesday, ASX-listed developer Cedar Woods shelved a major inner-city Brisbane townhouse and apartment project due to rising costs and delays.

It came less than a week after Perth developer Sirona Urban killed off a $165 million luxury tower, where more than 50 per cent of apartments had been bought off the plan, blaming skyrocketing construction costs and labor shortages.

It was the second major apartment project to fall over in Australia last week.

A Melbourne developer, Central Equity, abandoned plans to build a $500 million apartment tower on the Gold Coast, blaming the crisis in the building industry and surging construction costs for making the project unprofitable.

Earlier this year, two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, went into liquidation.

The grim list has continued to grow from there as a number of other high-profile companies also collapsed, including Inside Out Construction, Dyldam Developments, Home Innovation Builders, ABG Group, New Sensation Homes, Next, Pindan, ABD Group and Pivotal Homes.

Others joined the list too including Solido Builders, Waterford Homes, Affordable Modular Homes and Statement Builders.

Then two Victorian building companies were further casualties of the crisis, having gone into liquidation at the end of June, with one homeowner having forked out $300,000 for a now half-built house.

Hotondo Homes Horsham, which was a franchisee of a national construction firm, collapsed a fortnight ago affecting 11 homeowners with $1.2 million in outstanding debt.

It is the second Hotondo Homes franchisee to go under this year, with its Hobart branch collapsing in January owing $1.3 million to creditors, according to a report from liquidator Revive Financial.

Meanwhile, a Sydney family face never being able to build their dream home after their builder Jada Group collapsed in March owing $2.4 million and the cost of their home’s construction jumped to $1.9 million, a whopping $800,000 more than the original quote.

Snowdon Developments was ordered into liquidation by the Supreme Court with 52 staff members, 550 homes and more than 250 creditors owed just under $18 million, although it was partially bought out less than 24 hours after going bust.

Dozens of homeowners and hundreds of tradies were left reeling after a Victorian building firm called Langford Jones Homes went into liquidation on July 4 owing $14.2 million to 300 creditors.

News.com.au also raised questions about NSW builder Willoughby Homes, which is under investigation by the Government after builds stalled and debts blew out to 90 days.

There are between 10,000 to 12,000 residential building companies in Australia undertaking new homes or large renovation projects, a figure estimated by the Association of Professional Builders.

– with Sarah Sharples

Read related topics:Cost Of Living

.