Real estate Australia: Fresh concerns for off the plan property purchases

The off-the-plan housing market has been hit by fresh fears, after a challenging two years of the pandemic. But thankfully it’s not another cracked building calamity.

The off the plan market is subject to unfortunate fresh dark clouds, after a challenging two years of the pandemic.

Thankfully it is not another poorly built apartment block undermining the industry following the Opal Towers cracking calamity in 2018.

But last month’s shock collapse of the national construction company Probuild casts an unhelpful pall over the industry given they blame it on the blowout in building costs.

Off the plan apartment and house and land buyers need to be very attentive to the capacity of their developer to deliver settlements.

The collapse of Probuild will certainly hit apartment project delivery at its sites, after Wilson Bayly Holmes-Ovcon (WBHO), the South African parent company appointed administrators. It ranked among the largest construction companies in Australia with recent annual financial filings having $1.3 billion revenue.

Thankfully it is not another poorly built apartment block undermining the industry following the Opal Towers cracking calamity in 2018.

But WBHO said the Covid-19 pandemic had created challenging trading conditions, which had triggered loss-making projects.

Maxwell Shifman, president of the Urban Development Institute of Australia, recently noted cost blowouts in the wake of the HomeBuilder subsidy had created challenges for the building industry in what could be a “profitless boom.”

Much focus has been on Cbus Property’s 443 Queen St, Brisbane apartments, an ambitious riverside project now two years overdue.

But tools are now down at all Probuild’s other apartment projects.

Cbus heads the list of apartment developers needing to keep their off the plan buyers updated on revised construction timelines. Cbus is big enough to absorb the shock, and while it will be too early for them to say what will happen, buyers can expect to see extensive delays in construction work resuming which will see anticipated completion times pushed out.

Probuild’s woes has sent shockwaves through the construction industry. Picture: Zak Simmonds

Projects will need the appointment of fresh builders – and their construction tenders will take into consideration the more expensive building supplies and services that have emerged in recent months.

This poses a huge issue for many small and medium developers as to whether they can absorb the higher costs to get the project done.

Some developers will abandon delivery of the project leaving them as black holes or near finished high-rises.

Others will successfully avoid lenders putting them into external administration, but some are likely to seek to exercise sunset clauses in the courts to release them from their obligations to proceed to settlements given delays and cost overruns.

Off the plan sales will certainly slow against this backdrop.

Sub-contractors and tradesmen pack up their equipment and walk off the 443 Queens Street construction site in Brisbane. Picture: NCA NewsWire / Dan Peled

And of course this is an industry which thrives on the anticipation of price gains, so all the headlines forecasting dwelling price falls beginning this year, and continuing for the next two years, will further inhibit off the plan sales.

Developers need pre-sales before their lenders will permit construction to begin, so fewer fresh projects will now come to market.

That might be a blessing in ensuring the cycle avoids the problems of oversupply.