Fears collapse as half of construction companies trade at a loss

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Construction workers regularly have mental breakdowns and cry to co-workers and family members because 80% of construction companies bleed money.

Australia’s construction sector is in dire straits with up to 80% of construction companies out of money, according to an industry expert.

More than half of the country’s estimated 12,000 construction companies are trading at a loss, and many are on the verge of collapse.

And those working in the industry regularly have mental breakdowns and cry to co-workers and family members as the pressure to survive mounts.

Construction companies are “losing huge sums of money”, Russ Stephens, co-founder of the Association of Professional Builders (APB), told news.com.au on Sunday.

“80% of Australian builders have lost money in the last 12 months. It’s awful,” he added.

“Around 50% of construction companies in Australia are currently experiencing negative equity.

“About 25 to 30% [of these companies] cannot pay their bills on time.

A business is considered to have negative equity if it owes more than it has assets, with more than one creditor.

And once a company experiences negative equity, it’s a slippery slope to insolvency, he warned.

Several builders have already collapsed in the past six months across the country, big and small, leaving employees, contractors and customers in a pickle.

There are between 10,000 and 12,000 home building companies in Australia undertaking new homes or major renovation projects, according to figures estimated by the APB.

Of these, at least half suffer from negative equity.

“The first step [of a company collapse] This is where the company loses so much money that it has negative equity,” Stephens explained.

The second stage is insolvency, at which point the business is essentially over.

“It is not illegal to trade with negative equity, but it is illegal to trade in insolvency,” he said.

“However, the two merge, it becomes very blurry. The insolvent trade is a bit of a gray area.

He said this whole process was “a very slow and painful death for a construction company”.

“It drains the builder over a long period of time.”

To make matters more difficult, tight regulations mean that once a builder reaches a point where they have negative equity, it’s almost impossible to get out of it unless they can get their hands on a massive injection of cash.

“If 50% have negative equity, they can legally continue, but they can’t have their license renewed,” he said.

As a result, he has heard rumors that governments could throw builders a lifeline as they may be considering relax the requirements for these companies to maintain their license.

“If the rules were followed as intended, half the industry would be wiped out,” he added.

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The construction sector has been hit hard by collapses this year.

Two major Australian construction firms, Gold Coast-based Condev and industry giant Probuild, have already gone into liquidation this year.

Smaller operators like Hotondo Homes Hobart and Perth, Home Innovation Builders and New Sensation Homes, and Sydney-based Next have also collapsed, leaving homeowners out of pocket and with homes unfinished.

Late last month, two Queensland businesses collapsed within days of each other, Pivotal Homes and Solido Builders.

Metricon, Australia’s biggest construction company, received a $30 million cash injection after rumors emerged that the company had entered into crisis talks.

An industry insider told news.com.au earlier this year that half of Australian construction companies are on the verge of collapse as they are insolvent, and it could see thousands of homes affected within months. coming.

Mr Stephens said the situation had a direct impact on the mental well-being of people in the industry.

“Mental health is becoming a really big issue in the industry,” he said.

“The financial pressure is simply enormous. We hear plenty of examples of builders breaking down and crying.

“We are looking to set up support groups for any manufacturer, whether they are members of the APB or not.

“I’ve never seen so many builders leave the industry, either shut down or go to work for other people, it’s unprecedented.”

Mr Stephens also said government stimulus packages had exacerbated the situation and, ironically, could have driven the final nail in the coffin.

In 2020, as the economy languished with the arrival of Covid-19, the federal government announced the HomeBuilder program to encourage financial activity in the construction industry.

Eager first-time home buyers jumped on board, but now, two years later, rising prices, supply chain issues and rising material costs are bringing builders to their knees.

“Government stimulus measures have added fuel to the fire,” he said.

“Big construction companies were able to sign three to four times the normal number of contracts.

“The problem is that they haven’t been able to build three or four times as many projects.

We said at the time that it was unjustified, that the government was badly advised, that anyone inside the industry could see.

alex.turner-cohen@news.com.au

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