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More large Australian construction companies will fail this year, a building insolvency expert has warned, with thousands of sub-contractors, tradies and would-be new homeowners the vulnerable victims.

Andrew Spring, partner at building insolvency specialist Jirsch Sutherland, said it “wasn’t surprising at all” to see two tier-one construction firms go bust in quick succession after Christmas, given the serious headwinds the sector is now facing.

He said it was “a definite possibility” other construction giants would follow Probuild and Condev into liquidation, creating a potential “domino-like effect” for sub-contractors and tradies who will be left out of pocket and saddled with debt.
Nikki and Daniel Jacobson signed a contract with now-collapsed Privium in November last year with construction meant to begin in January. The family of five were told they'd be able to move in within nine months.
Nikki and Daniel Jacobson signed a contract with now-collapsed Privium in November last year with construction meant to begin in January. The family of five were told they’d be able to move in within nine months. (9News)

“The industry is in a really difficult position at the moment,” Mr Spring told 9news.com.au, predicting that the tough times would likely stretch into 2023 because “it does take time for the full weight of these sort of (major) insolvencies to come home all the way down the chain”.

Hopeful homeowners who had the misfortune to pick the wrong construction company won’t escape the financial bomb.

Queensland couple Nicole and Daniel Jacobson have been forced to shell out an extra $130,000 to finish their home, after the building company they signed with, Privium Group, suddenly collapsed.

After scrambling to find a new builder, they were shocked with a six-figure bill increase because the cost of materials had spiralled since they signed with Privium.

“It’s been really stressful,” Mr Jacobson, a father-of-three, said.

They are now struggling to pay for rent and a mortgage at the same time because timelines on the build have completely blown out.

Ms Jacobson said they weren’t even told Privium was going bust.

“We found out on social media,” she said.

Many other Privium customers had not been lucky enough to find a new builder, she said, and they were now “priced out of the market”.

Dyldam Developments, Hotondo Homes franchise Tasmanian Constructions, ABD Group, BA Murphy, Pindan and Inside Out Construction have all gone bust in recent months.

The rising cost of materials, COVID-19 shutdowns, supply problems and labour shortages had created “a perfect storm” now battering the construction industry, the Gold Coast-based founder of Association of Professional Builders Russ Stephens said.

“We’ve seen increases in the cost of materials between 15 to 20 per cent throughout 2021,” he said.

“(That) was then compounded by the supply crisis which has caused delays, and that’s increased the fixed costs for these builders as well.”

High material costs and “market conditions” have sunk forward forecasts for Condev. (Nine)
Condev has 13 unfinished projects across south-east Queensland, totalling an approximate $500 million. (Nine)

Fixed-cost contracts between developers, construction firms and sub-contractors spelled doom for the likes of Probuild, Condev and Privium, Mr Spring said.

“When you have timing overruns, labour price increases, contractor price increases and material cost increases, then you’re eroding your margins really, really quickly,” he said.

“And when you’ve got some of these larger projects, which may run into the years, you just can’t make that up.”

Mr Spring said the construction industry had been over-represented in the insolvency space for some time, largely because of fixed-cost arrangements.

“I wonder whether, off the back of this, we may need to see a reset in the industry as to how they go about pricing for work and assessing how to deal with these types of really rapid, difficult fluctuations.”

Building approvals have slumped

Australia’s recent housing boom had also driven prices of materials and labour up, he said, however the uptick in building appears over, at least for now.

Building approvals across the country collapsed in January, according to Australian Bureau of Statistics data, down 27.9 per cent from December.

“The decline was much larger than economists had expected,” Diana Mousina from AMP Investments said.

January approvals were 24.1 per cent lower compared to a year ago.

Ms Mousina predicted approvals would “track sideways” over the next few months, adding the reopening of Australia’s international border should result in positive approval activity on a 12-month horizon.

Source: 9News

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