Builders suffer bottom line blowouts
Queensland-based builders Privium and BA Murphy have gone into liquidation. BA Murphy reportedly owed almost $11 million to about 550 creditors while Privium likely owed more, according to administrators FTI Consulting.
Privium Group’s director Robert Harder attributed the collapse to the effects of the pandemic on operations, which led to a blowout in lead times and restrictions on work sites. The administrators say the costs of construction outpacing revenue growth had also played into the demise of the builder.
Melbourne-based high-rise builder ABD Group went into liquidation with outstanding debts in excess of $50 million, while Hobart-based Inside Out Construction folded in November, and Tasmanian Constructions, a franchisee of Hotondo Homes, has entered liquidation with 80 contractors and 40 customers left out of pocket.
CreditorWatch chief economist Harley Dale says the construction industry has grappled with the challenges of the pandemic and has the highest payment arrears at 12.4 per cent across the sectors monitored.
“The construction industry has been particularly hard hit by the pandemic,” Dale says.
“The industry has some unique payment structures which are contributing to a high rate of arrears. If the industry can work through its supply chain disruptions and blowouts in the cost of materials such as timber, it will be in good stead.”
Construction cost escalation strongest in 17 years
Commsec senior economist Ryan Felsman says securing building materials and labour is difficult in the housing market at the moment.
“A combination of strong demand for new homes and renovation work due to record low interest rates, the government’s HomeBuilder stimulus, and state government grants have generated strong building activity,” Felsman says.
“Overall building construction costs surged 2.9 per cent in the December quarter and were up a massive 7.5 per cent at the end of December when compared with the previous year. A scarcity of skilled workers and a surge in building materials costs due to supply chain and transportation bottlenecks, have contributed to soaring building construction costs.”
Felsman says input prices to house construction surged 12 per cent over the year to December as supply constraints, stock shortages and surging freight costs bite into bottom lines.
He said key building materials including timber and joinery had increased 18.4 per cent over the year, while aluminium windows and doors have increased 13.2 per cent.
Corelogic’s Cordell construction cost index for the last quarter of 2021 showed that national construction costs had increased 7.3 per cent over the year, the highest annual growth rate since March 2005.
Corelogic director of research Tim Lawless says supply chain disruptions would continue to create upward pressure on the cost of construction.
“There is a significant amount of residential construction work in the pipeline that has been approved but not yet completed,” Lawless says.
“With some materials such as timber and metal products reportedly remaining in short supply, there is the possibility some residential projects will be delayed or run over budget.”
Cordell data shows that cost increases are still being driven primarily by timber (mostly structural timber). Other segments of the market also remain volatile, with increasing pressure on metal costs.
Dwelling approvals: December 2021
Dwelling type | December 21 | Monthly change | YoY change |
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Total dwellings | 17,698 | 8.2% | -7.5% |
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Houses | 10,444 | -1.8% | -21.3% |
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Units | 7008 | 27.5% | 24.5% |
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^Source: ABS Building Approvals December 2021
Building approvals down 21.3pc in 12 months
The Australian Bureau of Statistics released building approvals data for December, highlighting the demise of house building, which dropped 1.8 per cent over the month, while unit approvals skyrocketed 27.5 per cent.
The drop in house build approvals in December follows a 1.6 per cent contraction in November, and a record 21.3 per cent decrease over 12 months.
Reserve Bank of Australia governor Philip Lowe acknowledges the stronger GDP and labour market outcomes have translated into “higher inflation than we were expecting”.
“We had expected underlying inflation to be 1.25 per cent over 2021, yet the actual outcome was 2.6 per cent,” he says.
“Headline inflation was higher still at 3.5 per cent, boosted primarily by a sharp increase in petrol prices and the cost of constructing new homes.”
While the RBA maintains a dovish stance on monetary policy Lowe says while the omicron variant outbreak has delayed the recovery of the economy he is confident it has not been derailed.
Article Source: www.theurbandeveloper.com