Instability is plaguing the Australian domestic building market due to various factors, such as rising material costs, material shortages, skilled labour shortages, shipping delays, small profit margins, and the ripple effect of COVID-19 restrictions and lockdowns. This situation has recently gained prominence as numerous renowned builders, including Porter Davis, Probuild, Pindan, Oracle Homes, Caydon Property Group, Jaxon Constructions, and Pivotal Homes, have collapsed, and others are on the brink of collapse. Although Metricon, the country’s biggest builder, faced financial difficulties, they are reportedly in a more secure position after receiving cash injections. To prevent homeowners from engaging with financially distressed builders, here are some suggestions.
Many people fall for this trap, thinking that they are getting a good deal on their building project. However, the adage that “if it sounds too good to be true, it probably is” holds true in this case. Builders who are struggling to win more business to keep their doors open may agree to unprofitable contracts, which can lead to bankruptcy. Builders who are inexperienced in a certain type of construction may also underestimate the costs associated with complex new builds, second storey additions, or renovations. Choosing a reputable builder who specializes in a certain type of construction and knows the full extent of costs that may arise during the construction process is crucial for a successful stress-free build.
Regular unhappy customers expressing their dissatisfaction is a key indicator that the wheels are about to fall off. Look for one-star reviews on Google or other platforms. For example, a recent builder that went into receivership had 9 one-star reviews in the 12 months before it shut its doors. The consistent message in these reviews was that no one cared to return their calls, they were slow with getting problems rectified, they did a poor job with finishes, and the staff were incompetent.
During the design phase, see how long the builder takes to respond. If they are not able to follow through on their commitment, this might be a warning sign that there may be problems internally. How they treat you at this stage is a good indicator of how they will be throughout the build. If you are not happy with constant delays, reconsider builders who don’t follow through on what they say.
A construction contract in Victoria is generally broken up into progress stages, with the deposit stage being 5% of the contract price. If your builder is asking for more than 5%, this might be a sign they need cash flow to maintain their business. If you have already entered into a contract and your builder starts asking for upfront payment so they can order materials or pay their subcontractors, this is also a warning that they may soon be bankrupt.
When a builder goes bankrupt, not only are the clients at risk of losing money, but also the subcontractors who work for the builder. If subcontractors are having to chase up the builder for payment, this indicates that the builder may be chasing their tail and could be at risk of going bust. You can also ask the subcontractors about their workload and whether there has been a drop-off in work. This is important to understand because if a business is not making enough to cover all their costs, they are automatically in the red.
In conclusion, the instability in the Australian domestic building market has created an environment where homeowners need to be careful when selecting a builder. The tips provided above can be helpful in identifying financially distressed builders who may be at risk of insolvency. Homeowners should take the time to research their builder’s reputation, past projects, and current workload, and should not be swayed by significantly lower prices or aggressive marketing tactics. By choosing a reputable builder with a track record of success and satisfied customers, homeowners can avoid the financial and emotional turmoil that can result from a builder’s insolvency.
