THE BUILDING INDUSTRY’S SILENT COLLAPSE
The failure of major builders such as Condev and Pivotal reverberate around the city and nation – but there are plenty more on the brink of similar fates
THESE are the deaths we don’t hear about.
While the collapse of Gold Coast builders like Condev and Pivotal make headline news, many more are slipping under with barely a ripple.
“I get so many distressed calls, it’s heartbreaking,” says Master Builders Gold Coast regional manager Adam Profke.
“Just recently I had a builder who called me and said ‘I don’t know what to do, I’ve got two jobs and I’ve just lost $300,000 on each one’.
“He had nothing left to sell – the cars were gone, the jet ski, he didn’t have any equity in his house left. So he had to go into administration.
“The sad thing is that his story isn’t even remarkable.”
But even Mr Profke doesn’t know just how dire the situation is within the city’s building industry.
All that he can definitively say is a number of memberships have been cancelled or not renewed.
“We only ever hear about the big ones like Condev, but they are just the tip of the iceberg. The ‘mum and dad’ builders are also struggling,” he said. “All I know is that builders are opting out of their QMBA memberships. That could be because they’ve gone under or they’ve retired or they’re changing industries. All of that is happening.
“A lot of the older guys are just packing it in now, it’s too tough. For the younger guys, it’s just a daily battle.”
This collective construction collapse is something of an economic enigma.
After all, demand is as strong as ever – even with the rise in interest rates, there’s plenty of work when it comes to building up the Gold Coast.
And while the cost of supplies has spiralled, surely that’s taken into consideration when builders price their contracts. Right?
Well, only to a point. There are two primary problems with this equation. The first is that supply costs keep soaring far beyond anyone’s expectations.
Indeed, Mr Profke says a few years ago the going rate for a residential build was around $1000-$1200 per square metre – now it’s $2000$2500.
Supply costs are increasing so quickly that anything priced more than three months out from actual construction is basically begging for a budget blowout.
But even if builders could predict precisely what their costs will be, the second part of this problem comes into play: builders are the meat in the sandwich … and are being squeezed to smithereens.
Between buyers unwilling or unable to pay what they consider to be over-the-odds and developers who must present an amount acceptable for approval by the banks – not to mention leaving room for their own profits – it’s the builders who are left scraping away at their already minimal margins.
It’s a particular problem when it comes to large-scale constructions, where the time between quote and build can blow out even faster than the budget.
“If development approvals get held up at the council, the builder is still locked in to that quoted price even as supply costs continue to increase,” Mr Profke said. “Developers can try to cater to that increased cost by passing it on to the purchasers, but we’re at the point where buyers just won’t pay any more … and the market is softening now too.
“In many projects the
builder is working with a profit margin of just two to four per cent – and that can be stripped away in no time between supply price increases, costs during the warranty period and post-construction costs.
“Meanwhile, developers can expect a 10-15 per cent profit margin, so there is that inequity. But if builders raise their prices, there’s a good chance the project will never get out of the ground because the banks won’t lend that amount.
“Even on smaller builds, builders are getting caught trying to deliver the best price. They might win the job but then they actually lose money.
It’s a vicious circle and builders are caught in the middle.”
Mr Profke says while he believes in the future of the construction industry, there is no silver bullet to cure its current problems.
He says the best builders can do right now is to slow down and employ a laser focus to their quotes.
“We’ve had some pretty blunt conversations lately … you know, why would you want to become a builder in this market?” he said.
“In this current environment it’s a miracle we can get anything out of the ground. Something has to give, it’s unsustainable.
“It’s an ongoing battle that we are all trying to ride out. Many will make it, but they’ll be doing it tough. And some, of course, won’t make it.”
RIP to the tomb of the unknown builder.
The collective construction collapse is something of an enigma