MARKET PULSE: Some of Australia’s biggest businesses in the construction industry are in the throes of crisis.

Smaller operators including Pivotal Homes, Privium, Hotondo Homes Hobart, Home Innovation Builders and New Sensation Homes, as well as Sydney-based firm Next have also collapsed, leaving homeowners in limbo with unfinished houses and whispers of price gouging and possible breaches of directorial duties floating about. 

The Reserve Bank of Australia’s bigger than expected jump in the cash rate of 50 basis points to 0.85 per cent on Tuesday will only spook the market further. Housing prices are already on the way down and forecast to fall further, which will increasingly erode market confidence.

In the past two years the cost of building a new house has increased by about $76,715, with average construction expenses exceeding $400,000 for the first time, BIS Oxford Economics senior economist Maree Kilroy told The AFR.

The reasons behind this are rising costs of materials thanks to shortages of materials and labour – causing expensive delays after the pandemic lockdowns and restrictions, not to mention government stimulus that directly targeted the housing sector.

Accusations of price gouging are floating about. In May, South Australian government minister for housing and urban development Nick Champion with the support of Master Builders SA, wrote to the Australian Competition and Consumer Commission, asking it to intervene in increased building costs and their impact on housing affordability.

The war in Ukraine has also had an impact.

It’s little known that Australia imports a significant amount of timber from Russia and Belarus, in particular the engineered wood product Laminated Veneered Lumber (LVL), which is made by gluing multiple layers of thin wood together to create a strong structural beam. 

Together the two countries supply between 40 and 50 per cent of Australia’s engineered wood products including LVL, Formwork LVL and I-Joist beams, The Australian Timber Importers Federation estimates. 

This accounts for around 3 per cent of Australia’s total timber imports with a value of around $80 million, according to some estimates (other estimates put that figure at 25 per cent),

Russia and former Soviet Bloc countries are the largest timber exporters in the world. 

Earlier this year The Australian Timber Importers Federation warned that a ban on Russian timber would cause job losses across the supply chain, while respecting the moral stance of The Australian government on the issue.

“ATIF estimates that restrictions on timber product imports from Russia will result in a 10-20 per cent reduction on employment across the supply chain,” the organisation informed members in a March-April bulletin. 

“Subsequent delays to building activity are also likely to further acerbate supply difficulties and put upward pressure on product and building prices.

“ATIF believes that the Australian housing industry will be faced with a significant risk should Russian timber product imports be threatened by trade sanctions.”

A declaration of the timber as “conflict timber” also affected projects seeking Green Star certification.

“As the only recognised timber certification schemes in Green Star, PEFC and FSC have announced that Russian- and Belarus-sourced timbers are now declared conflict timbers and no longer eligible for their standards. This means that Green Star will not be recognising timber from those regions,” the Green Building Council of Australia Chief Executive Davina Rooney said.

The collapse of Probuild and Condev predated Russian imports being marked “conflict timber” on 4 March, and it was most likely the impacts of the pandemic that pushed the companies over the edge. 

This comes as the NSW government were reportedly in talks last month to prepare a bailout package for Metricon as the company struggles to avoid collapse. The company have received a $30 million cash injection from shareholders.

In February, Probuild, which was one of Australia’s largest construction companies, went into administration with an annual turnover of more than $2 billion at the time of collapse, handing off an advanced national pipeline of projects worth around $5 billion. 

Probuild was constructing the $1 billion Ribbon development in Darling Harbour, Sydney.

Sydney-based private contractor Roberts Co took over five of Probuild’s Victorian projects worth more than $1.6 billion and absorbed 152 Probuild staff as permanent employees. 

Over the past four years Probuild parent company WBHO bailed out the Australian arm of its business with up to $183 million as it struggled to stay afloat amidst pandemic restrictions and lockdowns.

WBHO blamed the Australian government’s pandemic restrictions and lockdowns as a major factor in costly project delays. 

“The Australian businesses have not been able to complete projects on time and not been able to recover variation and delay claims, resulting in material losses in the financial period to date and the requirement for further funding and balance sheet support from WBHOC,” it said in a statement.

The South African company’s share price plummeted over 27 per cent on the Johannesburg Stock Exchange following the announcement.

One month following that builder’s collapse, Condev also folded in March. The Gold Coast based construction company vied for a $25 million bailout from developers but was unsuccessful

Co-founder Tracy Marais said that other companies in the industry would “for sure” follow.

And they did – Sydney-based construction company Next went into liquidation citing flooding, labour and material shortages and project delays. Contractors were left owing $5 million with employees short of $400,000.

Then it emerged that Queensland-based home builder Privium, which went bottom-up in December, bought $3 million in cryptocurrency and transferred half a million dollars to a Christian charity before it shut down

Administrators stated that the crypto purchase was a “possible breach” of directorial duties, and it is an “extremely illiquid asset” that was “extremely difficult, if not impossible” to release..

It was also revealed that the charity address is the same as many of the Privium businesses, and one of the directors is Rachel Harder – Privium chief executive and founder Rob Harder.

Hundreds of homes were left unfinished, with Privium chief executive and founder Rob Harder saying that he was “deeply sorry”. 

Back in January, Tasmanian builder and owner of Hotondo Homes Hobart, Tasmanian Constructions, also shut down, leaving as many as 80 contractors and 40 customers in limbo. The company closed with estimated liabilities of more than $1 million not including amounts paid by customers. 

Liquidator Revive Financial found that some contractors were owed between $75,000 and $100,000. 

Last month Queensland builder Pivotal Homes became the latest domino to fall, with managing director Michael Irwin blaming rising labour and construction costs for the downfall.

Pivotal Homes claimed it was the victim of a ransomware attack weeks before it collapsed, destroying digital financial records and meaning that financial information will need to be pieced together using paper records. It has emerged that a Ferrari, bought for $440,000 in 2018 and listed as a company asset, was sold a few months ago. 

Queensland’s building watchdog has cancelled the licences of almost 100 builders as part of a crackdown on operators who have failed to meet reporting requirements.

The Queensland Building and Construction Industry said the builders, including two with annual revenue up to $240 million, had failed to lodge mandatory annual financial reporting that was due at the end of last year.

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