One of Australia’s biggest construction bosses has issued a sober warning about the state of the construction industry, expecting many more businesses to collapse in the coming months.
Hutchinson Builders of Queensland chairman Scott Hutchinson put it bluntly.
‘I bet more builders are going bankrupt in Australia,’ he said Australian Financial Review.
Mr Hutchinson blamed the functioning of the Australian building system, with most of the blame placed on the builders themselves rather than the developers.
He explained how developers tried to lure customers to their projects with competitive bids without understanding the very tight margins builders had to fill to make a profit.
Construction companies mainly have to oblige these developers because there is no shortage of builders, but projects are limited, Mr Hutchinson said.
Developers can also take on customers with very little financial stake while builders bear the brunt of the risk.
“They [builders] will roll the dice with their fingers crossed every day of the week,” he said.
It is undeniable that the construction industry in Australia is in crisis; many businesses have gone into liquidation so far this year due to rising construction material costs, but also being locked into fixed-term contracts, forcing them to close.
Two months ago, news.com.au spoke to Russ Stephens, co-founder of the Association of Professional Builders (APB), who warned the industry was in dire straits with up to 80 % of construction companies in haemorrhage.
More than half of the country’s estimated 12,000 construction companies are trading at a loss, and many are on the verge of collapse.
And those working in the industry regularly have mental breakdowns and cry to co-workers and family members as the pressure to survive mounts.
“[Building firms are] losing huge sums of money,” Stephens said.
“80% of Australian builders have lost money in the last 12 months. It’s awful,” he said.
He said around 50% of construction companies would not be able to pay off all their debts at once if creditors demanded their money at the same time.
“About 25 to 30% [of these companies] cannot pay their bills on time,” he said.
An industry insider told news.com.au earlier this year that half of Australia’s construction companies are on the brink of collapse as they are insolvent.
Overall, the construction industry has been plagued by a series of meltdowns caused by a perfect storm of supply chain disruptions, skilled labor shortages, spiraling costs 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 building companies in particular were hit hard.
Two construction companies in Victoria have fallen victim to the crisis after going into liquidation at the end of June, with a landlord shelling out $300,000 for a now half-built house.
Then there were smaller operators like Hotondo Homes Horsham, which was also based in Victoria and franchised to a national building company – which collapsed earlier this month affecting 11 owners with 1.2 million dollars of unpaid debt.
It is the second Hotondo Homes franchisee to file for bankruptcy this year, after its Hobart branch collapsed in January owing $1.3 million to creditors, according to a report by liquidator Revive Financial.
Snowdon Developments was put into liquidation by the Supreme Court with 52 employees, 550 homes and more than 250 creditors owed just under $18 million, despite being partially bought out less than 24 hours after going bankrupt.
Others have also joined the list, 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 had not started construction in months, cleaned its offices without telling customers where it was going and disconnected its telephone line .
There are between 10,000 and 12,000 home building companies in Australia undertaking new homes or major refurbishment projects, a figure estimated by the APB.
A healthy construction industry is essential to a strong economy and continued growth, with the sector accounting for employment of nearly 9% of Australian workers and 7.5% of Australian GDP, according to CreditorWatch.
– with Sarah Sharples