Construction ‘likely entering recession cycle’ with 92 companies liquidated this year

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  • 92 companies in the building sector went into liquidation this year.
  • Two of the industry’s biggest organizations say the industry is likely at the start of a recessionary cycle.
  • Rising labor and material costs, combined with falling real estate prices, would make some construction untenable.

A total of 92 construction companies went into liquidation in the year to May 23, according to figures from the Department for Business, Innovation and Jobs.

Chief executives of Master Builders and the New Zealand Building Industry Federation said the sector was likely entering the downturn phase of the boom and bust cycle as labor shortages and of materials combine with high costs and falling real estate prices to make projects untenable.

In the past fortnight, 12 companies in the construction sector have gone into liquidation, according to the Government Gazette, seven of which were either unable to pay outstanding debts or were under investigation for negotiation as they were insolvent, according to the liquidators.

One of them is Cladtech Plastering Ltd – a family-run plasterer from Christchurch who focus on residential properties in business since 2014.

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New Zealand has seen a construction boom, gaining 27,875 homes last year.

KEVIN STENT / Stuff

New Zealand has seen a construction boom, gaining 27,875 homes last year.

The husband and wife who owned and operated the business said the disruption started with Covid-19 delays and snowballed. The couple were not named to avoid undue stress.

“We were behind on taxes and GST, and we had a client, I prefer not to mention, who always paid late, a month, two months late,” the wife said.

Late payments created a cash flow problem, which forced the company to take out commercial loans.

The pair sold a number of personal items, including three cars and two bicycles, to try to keep the business afloat.

“We decided to either keep them and wait for someone to close the doors and take it all, or sell them and use them to pay,” she said.

The couple had never experienced a breakup before and the experience was stressful, she said.

“In eight years, we have taken a few vacations, we have three children, we live a very simple life.”

A report from the liquidators says the company had fallen behind with various Inland Revenue (IR) assessments for PAYE and GST, with approximately $120,000 owed and an estimate owed to unsecured creditors of approximately $100,000.

Other companies that have gone into liquidation in the past two weeks include Raglan Labor Hire Ltd, Oceanside Homes Ltd, Lighthouse Properties Ltd, Tuff Laborers Ltd, Bula Contractors Ltd, Hi-Tech Glass Ltd and Keast Enterprises Ltd.

These follow the high-profile liquidations of construction companies Wellington Jonesy Construction Ltd and Armstrong Downes Commercial.

Over the past fortnight, the Government Gazette has also announced that eight applications have been made to the High Court to wind up companies in the construction sector, with most applications made by the Revenue Commissioner.

The National Director of Building Records at the Department of Business, Innovation and Employment, Bolen Ng, said he had not noticed a trend of more businesses going bankrupt. construction, with 12 others going into liquidation during the same period from January 1 to May 23 last year.

But Simon Dalton of Gerry Rea Partners, which is involved in the liquidation of Tuff Labourers, said his firm was seeing an increase in inquiries about the construction industry.

Liquidator Simon Dalton says supply chain issues, cash flow issues with late or non-paying customers and lack of skilled labor seem to be the main issues facing construction companies .

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Liquidator Simon Dalton says supply chain issues, cash flow issues with late or non-paying customers and lack of skilled labor seem to be the main issues facing construction companies .

“Demands from construction companies are increasing”

Dalton said small businesses tend not to have enough capital to get them through short-term difficulties.

“Many SMEs rely on shareholder or director funding in difficult times,” Dalton said.

“This financing is usually backed by borrowings from the shareholders’ house, which in today’s housing market and rising interest rates can be difficult,” he said.

In the case of Tuff Labourers, Dalton said he was unaware of any ongoing projects and it appeared the main creditor was the IR.

David Kelly, managing director of Master Builders, says any struggling construction company should be open and communicate with customers and contractors.

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David Kelly, managing director of Master Builders, says any struggling construction company should be open and communicate with customers and contractors.

Master Builders chief executive David Kelly said it was possible the sector could experience a brief spike in liquidations, but it would likely be part of a broader trend towards the later part of another expansion cycle. and recession.

“I am not surprised that companies in the construction industry are under a lot of pressure, particularly due to the availability of various construction products, the rate of cost increases and the availability of experienced tradespeople,” said said Kelly.

The current boom lasted about 12 years, so the country was overdue for a downturn, he said.

This time, the collapse might play out differently, as there was a lot of work going on, so the magnitude of the downturn would be dictated by the slowdown in new orders.

“Consumers are also a bit wary of the state of affairs. They hear about rising costs, hardware delays, so consumers are just starting to delay decisions, so it’s the classic boom bust. he said.

Any buyers who are concerned about their builder or developer should contact them and not be afraid of “hurting someone’s sensibilities,” Kelly said.

Buyers should also verify that work milestones have been completed before making payments, if they were on a progress payment plan.

Building Industry Federation chief executive Julien Leys said many builders did not expect supply shortages or price increases to be as drastic as they have been .

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Building Industry Federation chief executive Julien Leys said many builders did not expect supply shortages or price increases to be as drastic as they have been .

If buyers couldn’t get an answer, they should contact any professional bodies the builders belonged to, such as master builders, and possibly consult with an attorney, Kelly said.

Building Industry Federation chief executive Julien Leys said the industry appeared to be entering the bust part of the cycle, but it was too early to say definitively.

Lays said the industry had yet to see the impact on smaller builders, many of whom had taken on too much or were locked into fixed-price contracts that were no longer tenable due to price increases.

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