Don’t Get Stuck with a Failed Builder: Investor Partner Group On How to Spot Struggling Builders
Moxin Reza, a CEO and Founder of Investor Partner Group, shares insights on the current state of the Australian building sector. His team specialises in assisting homeowners in navigating the property market and safeguarding their investments by offering professional guidance on protecting customers from insolvent builders.
In 2020, the Australian government provided substantial funds to support the economy, like homeowner grants, during the pandemic, leading builders to secure new contracts with an average margin of 10-15%. However, the COVID-related challenges with material supply and transportation had a negative impact, causing material prices to soar by nearly 20-30% over 18 to 24 months. Together with major infrastructure projects across all States to boost employment, there were serious labour shortages between new builds and projects, pushing labour costs up. Builders struggled to raise prices simultaneously because of fixed-price contracts, resulting in contracts that became 30% costlier to fulfil.
Additionally, builders' lack of financial literacy and business management experience contributed to the collapse. Most builders come from a trade background, relying on cash flow rather than profits. As profits vanished, cash flow remained, keeping them solvent. Builders adjusted prices to higher levels, but there's a 1.5-year lag between finishing loss-making projects and recovering losses. Rising interest rates caused new build contracts to decline, leaving builders unable to recoup losses. The options were to delay loss-making builds or declare insolvency. Builders working with developers are safer, as their margins are higher, and developers prioritise completing projects promptly.
Moxin identifies several signs to identify struggling owner-occupier builders. Builders who prioritise new projects over completing older ones and make lifestyle changes, such as downsizing their office or switching to a smaller car, may indicate financial difficulties.
To mitigate risks, clients should establish clear expectations and conduct thorough research. Contacting the builder's trades to inquire about their payment status and seeking guidance from building authorities can provide valuable information.
Checking Google reviews is another helpful step, as builders with numerous negative reviews may be cutting corners due to cash flow issues. Investing time and effort into research and protection measures before signing a building contract is crucial to avoid future complications.
Moxin warns against overly inexpensive builders, emphasising that if a builder's quote seems too good to be true, there is likely a reason for it. Instead, he advises considering custom builders, who may require a slightly higher investment but pose lower risks due to their limited scale.
It's important to understand that many struggling builders have faced bankruptcy due to significant losses by no fault of their own. Recognising the builder's efforts to communicate in good faith and understanding their cash flow problems can help establish productive solutions. However, customers should prioritise due diligence to safeguard themselves from builder bankruptcies.
Although collaboration with the builder to complete the project is essential, customers should know that builder bankruptcy can lead to increased costs, delays, and holding expenses for the homeowner. Taking initial steps to protect oneself can prevent future issues and financial burdens.
For more information about Investor Partner Group's services, visit www.helpmebuy.com.au.
Company Name: Investor Partner Group
Contact Person: Farah Shah, Head of Marketing for Investor Partner Group
Email: Send Email
Phone: +61 468 786 850