Building sector collapses taking up 30 per cent of total company failures in NSW and Victoria

Building company failures in NSW and Victoria account for over a third of the monthly business failures as the sector continues to be buffeted by economic headwinds.

With forecasts of a bumpy year ahead for the construction sector, company failures in NSW and Victoria are taking up almost a third of all insolvencies.

Revive Financial head of Business Restructuring & Insolvency Jarvis Archer said while big builders continue making headlines, a larger proportion are coming from Victoria and NSW, not Queensland which has been at the epicentre for all that was wrong with the industry over the last couple of years.

“Looking at the numbers, Queensland construction failures have steadied for now, below 25 per cent of local insolvencies, whereas the southern states are seeing construction insolvencies around 30 per cent of their state totals,” he said.

In July there were 548 liquidation or administration appointments nationally, according to indicative data from the Australian Securities and Investments Commission. This was down almost 12 per cent on the 621 insolvencies notched up in June. The figures don’t include company collapses where no state was listed.

NSW had the most failures last month at 229, which was 13 per cent fewer than in June (263), while Victoria dropped to 140 liquidations and administrations, down 9 per cent from 154 in June.

Western Australia bucked the trend, with insolvencies up almost 32 per cent to 50 in July while South Australia has 20, three more than the previous month.

Mr Archer said as supplier prices stabilise, it seems there’s a two-speed dynamic emerging in the building industry.

“Project builders and those in the low margin space competing on cost, still find it challenging, whereas higher end builders are seeing growth and strong margins.

“This makes sense given the sensitivity to economic conditions of cost-conscious buyers, who are often first homeowners stretching their borrowing capacity to build.

“Whereas cashed-up buyers and renovators, less concerned about interest rate rises, are still pushing forward with residential projects. While economic conditions remain uncertain, customers are more hesitant going ahead with projects.

“The slowing demand in construction will likely cause more insolvencies before confidence is restored.”

In July one of Australia’s largest privately owned building, construction and property development companies Toplace which owes an estimated $630m with 20,000 homeowners. Administrators were called in after the Sydney-based company worked through months of financial uncertainty.

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

The construction sector remains under pressure.

In other failures, Intensive Events was behind one of Australia’s largest electronic dance music events – the Lunar Electric Music Festival – went into administration as did Bounce Foods, a pioneer in the protein bar and ‘energy ball’ market.

According to the latest Royal Institution of Chartered Surveyors Australia Construction Monitor the market took a further downturn in the second quarter of 2023.

The Construction Activity Index, in terms of net balance remained positive with a reading of +8 – but was down from +20 in Q1.

Looking across to current workloads, private residential workloads declined to -10 (from 0 in Q1) which is the lowest reading since the third quarter of 2020.

Private non-residential workloads dropped to +9 (from +24 in Q1) and infrastructure, although remaining firmly in the positive figures, slipped to +37 (from +52 in Q1).

Survey respondents cited skills shortages, labour shortages and cost of materials as the top concerns holding back the sector.

WCT Advisory managing partner Andrew Weatherley said the accommodation and food services industry in the firing line.

“They are starting to suffer from a decrease in consumer spending levels and overall confidence and where, particularly in small business, a lack of capital or funding options can limit options,” he said.

“I think the biggest change that will continue to lead to increase insolvency numbers is that banks are tightening lending criteria making refinance and finance options more difficult to obtain, creditors are increasingly taking action to recover debts and the ATO is much more aggressive in pursuing outstanding amounts, in particular with DPNs (Director Penalty Notice) to directors.”