My family has been developing property for two generations, and I cannot remember a time when it was harder to make a mid-rise apartment project work in Melbourne.
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For one of our current projects, once we include taxes, statutory charges, consultant and compliance costs, insurance and the additional construction requirements imposed by regulation, the amount being absorbed is approaching 43 per cent of the project’s end value.
That figure comes from our own feasibility – it is not presented as an industry-wide average – but it demonstrates how much of the selling price disappears before a developer earns a dollar.
I do not know the Bathla family, and I do not know what happened inside its hundreds of companies. That is now for the administrators, regulators and potentially the courts to establish.
Let me also be clear: producing less expensive housing cannot excuse defective construction, unpaid employees, subcontractors left out of pocket or excessive borrowing. Affordability must never become another word for poor quality.
But there is another side to the Bathla story that Australia should not ignore.
Bathla built at the more affordable end of the Sydney housing market, particularly in western Sydney. It created homes in locations where rapidly rising land and construction costs have made new housing increasingly difficult to deliver.
Whatever its original motivation, Bathla saw an opportunity to produce homes for a section of the market that many developers could no longer service.
While the machine was operating, thousands of people were employed. Contractors, consultants, agents, lenders, certifiers and suppliers were being paid. Homes were being produced, and families were moving into them.
I imagine the machine then became extraordinarily large and complicated.
Bathla reportedly owes approximately $3.4 billion, including about $3.08 billion to secured lenders. There are more than 40 lenders, 45 active construction projects and approximately 2500 homes already under construction. These are reported figures.
That is not simply a failed development company. It is an entire housing-production system that has stopped with people still inside it.
Rapid growth can create overconfidence. When something has grown from almost nothing into a multi-billion-dollar operation, it can become easy to believe that every new acquisition will work, every loan will be refinanced, and every problem can be solved by starting another project.
But property development does not forgive complexity forever. Eventually, every project needs enough cash to reach completion.
Private credit has been enormously important to Australian development. The major banks increasingly want substantial presales, conservative valuations, fixed-price building contracts and significant developer equity before they will finance construction.
Private lenders have stepped into that gap and enabled projects that would otherwise never have commenced. Kudos to them!
But private credit is more expensive. When a developer has dozens of lenders secured across different projects and companies, the finance structure can become almost impossible to coordinate when something goes wrong.
The danger now is that the Bathla collapse causes private lenders to retreat from residential development altogether.
That would not punish Bathla. It would punish the next generation of viable developers, purchasers and housing projects.
More projects would be delayed. Finance would become more expensive. Fewer affordable homes would be built. Developers would increasingly concentrate on larger, high-end apartments because those are the only projects capable of absorbing the cost of regulation, finance and construction.
That is precisely the opposite of what governments say they want.
Rather than writing a cheque to rescue a failed company, governments should help rescue viable individual projects. Where a project is capable of being completed, its financier, administrator and an incoming builder or developer should be given a pathway to finish it…or do something out of the box…
Save the homes – not necessarily the empire.
The government should also consider a targeted GST concession for genuinely affordable new homes. This will help now!
New housing carries GST, while the resale of established residential property generally does not. At the very moment Australia desperately needs additional homes, the tax system places a substantial cost on producing them.
I am not proposing an unrestricted windfall for developers. The concession could apply only to new homes below clearly defined price caps, sold to eligible owner-occupiers, with contractual requirements that the benefit be passed through to the purchaser.
It could operate for three years, be independently audited and include a clawback if the home is quickly resold or converted to another use.
The exact benefit would depend upon whether the development uses the GST margin scheme, because GST is not automatically 10 per cent of the total sale price. But a properly designed affordable housing GST rebate could still remove tens of thousands of dollars from the cost of producing or purchasing a new home. And the viable feasibility would be back, at least for a short while!
That would bring developers back into the affordable end of the market. It would improve project feasibility. It would give financiers greater confidence and help get housing construction moving again.
Now, delivering a new apartment project feels like dragging a chain through dirt.
Bathla’s collapse may ultimately prove to be a failure of governance, finance, construction quality or all three. Accountability for those failures must follow.
But if the only response is more expensive regulation and less available credit, then we have learnt nothing.
We will make development safer on paper while making new housing almost impossible to build.
And the people who will pay the greatest price will not be the developers or the financiers.
They will be Australians who simply need somewhere they can afford to live, so they don’t become prisoners in a BTR jail for life.
