CreditorWatch says the rate of external administrations has significantly increased

The first month of the new financial year has begun with yet more insolvencies in the construction sector despite a slowdown in the costs of materials.

The wave of insolvencies across Australia is expected to continue in the construction sector as building costs continue to rise despite some relief.

Master Builders Australia chief economist Shane Garrett said construction costs faced a rocky road, even though building materials inflation had hit a three-year low.

He said in the June 2023 quarter, the cost of building materials increased by another 0.6 per cent, the smallest quarterly increase since the end of 2020.

“While the slowdown in the overall cost of home building materials is welcome, there has still been a sizeable increase of 7.4 per cent over the past 12 months,” Mr Garrett said.

The past year has brought sizeable drops in the cost of several crucial building materials – a 10 per cent drop in steel product prices and a 4.4 per cent reduction in the cost of structural timber.

“Steel and timber were the source of the biggest cost headaches over recent years; the fact that prices here are now in reverse is something of a relief,” Mr Garrett said.

“However, the outlook is bumpy as even though the general trend in building materials prices is a favourable one, there has been a worrying acceleration in the cost of concrete, cement and sand products, a category where prices are now 16.2 per cent higher than a year ago.”

A GCB Constructions site on the Gold Coast.

CreditorWatch’s Safeguard your Business from Insolvency report forecasts that insolvencies will continue to rise, particularly for the construction and retail trade industries.

Chief executive Patrick Coghlan said insolvency risk management should now be core to business operations.

“FY24 will be difficult for Australian businesses and consumers,” he said. “By September 2023, the full impact of the RBA’s 12 cash rate rises will have been passed on by the banks, and the flow-on effect will impact roughly 40 per cent of Australian households that are coming off fixed term onto variable interest rates.

“This, accompanied by low levels of consumer confidence, leads to an expected increase in external administrations.”

Inflation and interest rate increases have put the squeeze on companies across the board with a 17.2 per cent spike in company insolvencies in 2022-23.

The construction sector made up about 28 per cent of all external administrations – a 74 per cent increase on the previous 12 months.

In the past few weeks one of Australia’s largest privately owned building, construction and property development companies Toplace revealed it owed an estimated $200m with 20,000 homeowners. Administrators were called in after the Sydney-based company worked through months of financial uncertainty.

On the Gold Coast, GCB Constructions finally went into administration, leaving construction of more than 500 apartments in limbo while Melbourne-based Construct Homes was placed into receivership.

Major property companies have announced wide-scale sacking; Lendlease has cut up to 10 per cent, or 740 jobs, from its global workforce and Mirvac will also reduce staff numbers.

Retailers are being forced to close because of inflation and rising interest rates.

Master Builders Australia chief executive Denita Wawn said the surge in building costs over recent years has taken a heavy toll on the cost of newly built homes and infrastructure across Australia.

“Latest inflation figures show that new dwelling costs rose by 7.8 per cent over the past year, exacerbating the housing affordability crisis,” she said.

“The rental market has also been hit hard by the surge in new home building costs. During the June 2023 quarter, rental inflation hit its fastest pace since 1988.

“With building and construction costs skyrocketing since the pandemic, it is important that government policies prioritise productivity improvements, reduce supply constraints and maintain flexibility.

“The federal government’s proposed industrial relations reforms will have damaging consequences for the industry and further impact the increasing costs of construction.”

Originally published as CreditorWatch says the rate of external administrations has significantly increased