Hundreds of builders going bust in Victoria
Hundreds of construction businesses went under in 2019, leaving unfinished houses and devastated families in their wake. Now, experts explain what sunk businesses such as Steller and Zealous, reveal their forecasts and what it means for buyers.
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More than 500 builders went bust last year – an average of 45 a month – leaving a trail of unfinished work and devastated homebuyers in their wake.
A Leader analysis has revealed 543 construction businesses entered external administration last year with 112 in July alone, according to Australian Securities and Investments Commission (ASIC) data.
This was up from the 389 companies that went under in 2018 and the figures for 2014-2017, an average of 433 a year.
Experts say last year’s number may have been skewed by a flow-on effect from the collapse of big developers such as the Steller Group, which went into receivership in July.
The news comes as Dandenong South family business Bilic Homes became a recent casualty, with liquidators appointed on February 10.
In January Maroondah Leader revealed luxury eastern suburbs builderBusby Homes had gone under, at the time leaving 10 homes unfinished and five contracted projects yet to start.
>> Have you been affected by the collapse of a property developer or builder? Email rebecca.david@news.com.au
Large developers Steller, Nicson Property Group, Verve Construction and Zealous Property Group were among businesses to bite the dust last year.
ASIC data showed the main causes of insolvency across the industry were inadequate cash flow and poor financial management.
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Property expert and advocate Catherine Cashmore said there had been a severe downturn in the industry last year, which caught big and small businesses alike, and the Royal Commission into financial services had “completely decimated the market”.
“Developers take massive risks because there is a lot of financial outlay ahead of a very long process – it can take two years to build but you are basing prices on today’s market,” she said.
“If the developers aren’t getting the sales they won’t be able to honour the finances they’ve already borrowed.
“And if a large-scale project goes under that can affect small builders and construction companies because all their work was going into that.”
Ms Cashmore said she thought the market would recover.
“That was a really severe drop which had a multiplying effect because the more prices dropped, the more spooked the buyers were and the more panicked the sellers became – it was a self-fulfilling prophecy,” she said.
“I don’t see it happening as severe as it was.”
But insolvency expert Glenn Crisp, from Jirsch Sutherland, was not so positive.
“There’s no good news in the construction industry right now, so we’ll have to hold tight and see what happens,” he said.
Mr Crisp said the high numbers of businesses going under from mid-2019 (342) could have been due to the collapse of Steller in July.
But there were also lots of underlying issues affecting businesses such as changes to GST laws, more stringent rules for banks providing finances for buyers and the rising cost of building materials, Mr Crisp said.
“It affects everyone but it’s ultimately the homeowners left in the lurch, often with half-completed projects and needing someone else to build their homes with the funds they’ve got,” he said.
Going forward, he said it may mean potential homebuyers will need to save larger deposits and be able to demonstrate they can service a loan.
Consumer Affairs Victoria (CAV) says builders must take out Domestic Building Insurance (DBI) for work that is more than $16,000.
A CAV spokesperson advised owners to obtain a copy of the DBI certificate that applies to their particular property and confirm their insurer, before signing a major domestic building contract.
“If the builder has failed to take out DBI, the owner will need to apply to the administrator as an unsecured creditor,” the spokesperson said.
‘KEEP A WATCHFUL EYE AND DON’T BE FOOLED BY SMOOTH-TALKERS’
She’s hundreds of thousands of dollars out of pocket and has waited three years for her new home, but it’s the emotional toll that has hit Daphne Carmi the hardest.
Ms Carmi was one of 11 buyers stung when Zealous Group went under in May last year, none of whom have their new homes yet.
“We started this process in 2017 but we won’t have the new place until June 2020,” she told Leader.
“It has been very hard for my husband and me – we had designed the home so that my elderly mother would be able to live with us but in the three years since she has had to go into a home.”
The pair had forked out more than $250,000 for a range of costs, including legal fees and having to rent for a much longer period than expected.
Ms Carmi said their months of complaints to building and consumer watchdogs prior to the liquidation had fallen on deaf ears.
When viewing a Zealous liquidation matter in October, the Bentleigh East woman said she was “absolutely gobsmacked” to see the court full of other construction companies also going bust.
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Ms Carmi warned potential buyers to “keep a watchful eye and don’t be fooled by smooth-talkers”.
“Demand a schedule for when works need to be completed,” she said.
“We had done all our due diligence and research, but we knew something was wrong when delays on the site went from weeks to months.
“They left us with the frame of a house that had to be demolished – none of the timber could be reused because it had been out in the elements for too long.”
In comparison, Ms Carmi said the new builders were always on site and made daily contact with her.