Foundations crumbling

Residential construction faces ‘ perfect storm’ as government cash ends

RESIDENTIAL construction companies, buoyed by government assistance in the wake of the pandemic, will face cashflow problems once the schemes end, potentially sparking a record number of collapses, according to a leading industry group.

The Association of Professional Builders says by early 2022 the industry will face a “perfect storm”.

Construction marketing specialist and co- founder of the APB Russ Stephens said government initiatives would see most residential builders through to the end of 2021 but the end of JobKeeper payments would drive unemployment higher. He said new home builds would probably dry up with the end of HomeBuilder, which would put pressure on builders’ cashflow by next year.

“Finance will also be harder to obtain, with 40 per cent of mortgagees already in mortgage distress and a significant number of them expected to default once the mortgage holidays are over,” he said.

“These factors will lead to less demand for residential construction and will come after a boom time which has generated high positive cashflow for builders and created a significant spike in their work.

“Builders will start to experience severe cashflow problems as soon as sales stop growing, which we anticipate will be the case in early 2022.”

Mr Stephens said he believed a record number of building collapses early next year was “definitely on the cards”.

However, CreditorWatch economist Harley Dale said that while the sector would face challenges in 2021, it was comparatively well off.

“CreditorWatch has been on record saying there will be a considerable number of insolvencies but you won’t see the tsunami of insolvencies that people feared in the middle of 2020,” he said. “But you will see a lot of businesses that have been shielded by government support ( unable) to pay debt when that support is removed. And residential construction is part of that.”

Data collected by residential construction software provider Buildxact has found a ramping up of activity in the sector with profit margins remaining steady in the three months to September while the total value of quotes rose by 42.7 per cent.

Western Australia, Northern Territory and Queensland experienced very high increases in quote volumes, NSW was recorded as high while South Australia and Victoria had slight increases and Tasmania decreased.

While the total number of new build and renovations increased in September when compared to August, the number of jobs won fell back to April levels, However it remained above the monthly average for 2020.