HomeBuilder has been a trojan horse for the residential construction sector as it grapples with growing pains associated with the unprecedented surge in demand.
More than 135,000 applications were made for the federal government stimulus package, with Victoria taking up the lion’s share of about 30 per cent.
Billed as the saviour of the nation’s economy, it is undeniable that HomeBuilder helped to kickstart Australia’s economic recovery in the wake of the pandemic.
But it has created the perfect storm.
Building approvals have begun to stall, Australian housing construction costs are at an all-time high, inflation is on its way up and pressure is mounting on interest rates.
Economists are warning greenfield developers and residential construction companies will feel the impact of the pull-forward effect over the longer term.
Surge in demand creates future hangover
ANZ head of Australian economics David Plank says the HomeBuilder program has brought forward construction activity but it is not responsible for the rapidly escalating house prices across Australia.
Plank says supply and demand forces are at play in the housing market that are driving prices sky-high in addition to inflationary pressures, as opposed to an artificial stimulus-led housing bubble.
“It definitely had an impact, we saw a dramatic surge in building levels,” Plank says.
“People that would have built a house in the next few years thought, ‘we should do it now’, which tends to bring forward that activity. It would have made sense that building approvals would have picked up, as is always the case with these sorts of subsidies.”
But with the glut of work, supply chain issues and labour shortages the bottleneck has been challenging for construction firms looking to capitalise on the pent-up demand.
National construction costs
Plank says the rub will come in the form of a slow-down in work in the longer term.
“There will be less activity in the future which we’re now starting to see, and it will decline further. Residential activity has started to slow,” Plank says.
“We think interest rates will get up to the 1s. We know that as interest rates go up that it will impact spending and the housing market quite materially.”
The rubber has already started to hit the road with some big name residential building companies going into receivership.
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|
^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
Hutchinson Builders takes over Cbus Brisbane tower that broke Probuild
Hutchinson Builders will take over the completion of Cbus Property’s troubled residential development in Brisbane, one of most problematic projects for failed construction contractor Probuild.
The awarding of the contract was widely expected, as family-owned Hutchies, the largest Queensland-based builder, was seen as the only contractor capable of taking on the 47-level project.
“Since commencing preliminary works on site three weeks ago, Cbus Property, together with Hutchinson Builders, continues to finalise subcontractor negotiations and prepare a revised construction programme,” Cbus Property chief executive Adrian Pozzo said on Monday.
“Once finalised, we will provide an update to purchasers with a more definitive completion timeline.”
Chairman Scott Hutchinson told The Australian Financial Review in early March he was “quietly hoping” to pick up the job and the announcement makes it second time lucky for the company that came second to Probuild in the 2017 race for the project.
But the project turned into such a drag for the business that Probuild parent WBHO said last year – long before putting the company into administration in February this year – that the project had racked up a $48 million loss.
Sydney-based Roberts Co has acquired Probuild’s Victorian projects and Built has taken over Dexus’ 25 Martin Place project in Sydney. The future of Greaton’s Ribbon project at Sydney’s Darling Harbour is still not clear.
Article source: www.afr.com
Gold Coast’s New Isoletto Pool Club Brings A Slice Of Europe To Queensland
Over the past few years, The Star Gold Coast has been going hard on expansions as the property tries to firm up its status as the area’s most emblematic luxury address. Unlike in other Australian cities up and down the east coast, The Star Gold Coast has virtually no competition in sight, leaving it as somewhat of an incubator for the coastal city’s more premium offerings across dining and accommodation. The latest opening to help fortify that kind of reputation is Isoletto Pool Club, a ritzy sixth-floor bar and events space that’s part of the new Leisure Deck within its recently built 53-storey hotel and apartment tower.
Given the Ibizia-style Cali Beach has been such a hit for Gold Coast locals and visitors, it’d be no surprise to see Isoletto Pool Club take off as the destination pushes into its post-pandemic groove. And while Australia’s east coast is most likely heading towards its wetter months (yes – even Sydney), the opening still comes nicely timed to capitalise on all the return domestic travellers looking for something a bit more premium than the typical Broadbeach haunt.
The suite of poolside spaces that make up Isoletto aren’t breaking the mould when it comes to some of the more popular pool clubs from around the world, but the clean organic neutral palette looks incredibly inviting with its bright accents of lemon and melon. Consider it one of the few slices of European inspired spaces nudging its way into the famously outdated spread of average cafes and generic restaurants (Social Eating House being an exception) that have held Broadbeach back for years.
The catch here is that Isoletto Pool Club will remain exclusive to all hotel guests within The Star’s numerous hotels, which span The Star Grand, The Darling, and newer developments Dorsett Gold Coast and The Star Residences. This includes anyone staying in the long-term rentals and permanent residences that make up The Star’s new apartment tower, which is opening in June this year.
There’s no subversion here. A press release for Isoletto Pool Club touts “island-inspired cocktails” and an extensive wine list, plus the kind of food menu that’s perfectly aligned with the coastal inspiration. Think casual Gold Coast staples like freshly rolled sushi and locally sourced oysters to fried snapper burgers and various acai bowls. Groups can also grab various poolside packages that include bottles of Champagne, cocktail selections, seasonal fruit platters, and some complimentary sunscreen.
The opening will be complemented by a separate Isoletto Privé, which is a dedicated event space signalled by a sprawling lawn and its own deck and terrace. And it seems The Star is really pushing this part of Isoletto, bolstering the property’s business and events portfolio with enough capacity to fit a comfortable 168 guests at long tables, 150 guests at seated banquet tables or a max of 1,200 standing guests if considering the entire Leisure Deck as well.
Homebuyers Warned as Builders Renegotiate Contracts
The Queensland Building and Construction Commission has warned homebuyers to seek legal advice before agreeing to make payments that fall outside of the terms of fixed price contracts.
QBCC’s warning comes as builders and construction firms face escalating construction and labour costs and delays.
Earlier this week, it was revealed Oracle Homes was asking homebuyers for up to $122,000 for price variations due to cost blowouts.
Master Builders Australia acting chief executive Paul Bidwell said the ongoing war in the Ukraine was also affecting supplies.
“We’ve just seen, as a result of the Ukrainian conflict, the federal government impose tariffs on goods coming out of that region and the immediate impact has been a 25 per cent increase on engineered wood products,” Bidwell said.
“So that will add $6000 to $11,000 depending on how big the house is.
“Who would have figured that that would have happened, two months ago?”
After high-profile builders Probuild and Condev declared insolvency, a number of smaller subcontractors, builders and construction firms are barely managing to stay afloat.
“What Oracle is going through is no different to what any other builder in Australia is going through,” Bidwell said.
“They have signed a fixed price contract and in the period of that contract, the cost of materials and labour has gone up astronomically.”
Cost variations can be accounted for via rise and fall or cost escalation clauses in contracts but when and how these can be introduced into contracts varies from state to state.
With a fixed price contract the homebuyer is not required to pay any more than what was initially agreed to in the contract but it does not prevent the buyer from contacting the homebuyer to negotiate.
Bidwell said it was key to keep the homebuyer informed and to try to negotiate.
“There is nothing to stop the builder going to their clients and saying ‘here is the problem I have got. I can’t finish it by this time, it’s going to cost more, here are my invoices so you can see the costs’,” Bidwell said.
“It’s all about managing relationships.
“The builder has to manage the relationship with the client so there are no surprises.”
Metricon’s chief executive Mariao Biasin recently announced that it was renegotiating contracts with some clients.
“Metricon is committed to fulfilling every valid contract in which a fixed price has been agreed,” Biasin said.
Last financial year, Oracle Homes built 112 houses worth $36.6 million, a drop of nearly two thirds compared to the previous financial year when it built 318 houses worth more than $90 million.
It has a category 6 licence allowing it to build up to $240-million worth of housing per year.
Bidwell said there seemed to be no short-term solutions.
“We do need to do more planting with forestry and more domestic production and manufacturing,” Bidwell said.
“But it won’t fix the problem in the short term.
“It’s very difficult—there’s not much that can be done.”
Monash University Professor Gerber told media this week that if a builder went bankrupt it would affect every one.
“When things start to go wrong for the builder, it really has a domino effect because all the people they are responsible for paying — their workers, their suppliers, their tradies — they all suffer and can’t be paid,” Gerber said.
Article Source: www.theurbandeveloper.com
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