The construction industry hits another wall
At a time when Perth’s apartment market is already facing supply constraints due to rising construction costs and other issues, the collapse of major construction company Probuild only adds to the pressure.
The announcement follows news that a number of construction companies have encountered problems locally, including Pindan Homes and its subsidiaries, which went into receivership in May last year, and JAXON, which has went into liquidation last August.
It’s not good for the industry to see another builder go down, especially a Tier 1 builder like Probuild.
Deloitte Australia was appointed administrator after the local company was told by its South African parent company WBHO that financial support would cease for its Australian arm, which included subsidiaries Probuild, WBHO Infrastructure and Monaco Hickey.
Although Probuild’s exposure to the Western Australian market has been limited recently, it shows the extreme risk and pressure that builders are facing across the sector.
The cost of construction in WA is already higher than that typically seen in the major eastern states markets, where there are many more players in the space.
Builders are not going to quote work in the current environment without factoring in massive cost increases, which disrupts every step of the development process.
The issues that forced Probuild into administration are being experienced by other WA builders. Builders who bid on a fixed-price contract are exposed to potentially significant losses due to rising material costs, difficulties and delays in procurement due to bottlenecks caused by COVID-19 and the current scarcity of available labour.
There is anecdotal evidence that construction contracts put out to tender two years ago have been delayed due to slow pre-sales and other COVID-19 uncertainties are now being priced at up to 50% more expensive by potential builders.
Based on the new tender price, projects no longer make financial sense for a developer as they require much higher rental or sale prices.
This exacerbates the supply problems facing the local market, and the Property Council of Australia estimates that around 35% of projects with approved development applications will be delayed by seven to 12 months.
With supply expected to tighten as WA opens its borders, demand is expected to continue to increase as interstate Australians and international migrants move to WA.
This is a complex and challenging environment where people looking to buy off plan or on completion of a proposed project are more dependent than ever on a developer who has experience, and the established relationships between the developer, architect and builder are important to deliver a quality product on time and on budget.
This three-way relationship between developer, architect and builder plays an important role in the continuity of the functioning of the local apartment building industry.
It is important for the architect to understand construction efficiency, make careful and wise material choices, and then be able to continue working with the developer and builder as the construction process continues.
Sensible and pragmatic design is paramount, as we often see great building proposals fail to take off.
In addition, the builder must draw up an accurate and prudent estimate, with enough contingencies built in to cover unforeseen difficulties and delays in the project.