Construction Industry - Boom and Doom

Faced with an unprecedented doubling of vacancy rates in the past year alone, Queensland’s construction and property boom may be under pressure.

Queensland has just emerged from a ‘profitless boom’ fuelled by rapidly rising construction of units financed by foreign investors. Builders have seen up to massive four-fold increase in turnover, yet are also suffering dramatic losses. Cracks have begun to manifest with the media reporting a swathe of building company collapses recently. 

When the government changed investment criteria for foreign investors, a large demand for properties opened up. Yet, the difficulty was that the supply chain struggled to compensate and support the demand. Subsequently subcontractors found themselves in short supply and herein lies the problem. From this position, they could demand their own prices and builders had no choice but to pay them.

The ripples from changes in 2015 are only now being felt two years later in 2017. Experts are theorising the issues stemmed from builders tempted to shoot for big contracts. Once the big contracts were secured and builders committed to that price, the problems arose, suffering greatly with the inflated sub-contractor and building supply costs. This imbalance put massive cash flow strains and pressure on businesses with companies trying to renege on paying those costs and defaulting on contracts.

Yet it is important to keep in mind that it is not all doom and gloom, the best possible solution is to seek trusted advice early from a respected insolvency professional. With over 30 years’ experience, Jonathan McLeod has headed a number of major insolvency cases in the construction industry.

In order to maximise the chances of weathering the storm, Jonathan Paul McLeod speaks highly of identifying early warning signs that may mean you’re in trouble. Whether you’re a developer, strata manager or landlord here are some key things to look out for.

For developers, a number of nuanced factors can spell trouble. For example, if your buyers cannot settle, you’re sacrificing deposits, you’ve had to breach covenants with lenders and running out of cash prior to completion.  These all spell out the need to contact a trusted insolvency professional.

Strata managers need to be aware of foreign investors who either won’t tenant their properties or ignore their Body Corporate commitments. Coupled with a poor quality of construction, which may affect future sinking fund viability, it is important that they consider seeking appropriate advice

For landlords, falling value of units and face value of rent can present issues, particularly if there are retail tenants breaching lease agreements.

Due to the unique nature of the construction industry and nuance of every case, unqualified and unregulated advisors can end up doing more harm than good. In an already under pressure industry it is important to act quickly and with the right advice.

To discuss the issues raised in this article or for advice, please contact McLeod and Partners today.