Alongside a house property boom, Australia is in the midst of the home building boom, with the Housing Industry Association (HIA) expecting a near-record number of homes to be built over the next 12 months.

HIA also expects the industry will continue to run at capacity, constrained by the availability of land, labour and materials. Over the year to September, the price of skilled trades increased by 5.2%, while the price of materials as measured by the ABS increased by 8.0%. The residential land price increased by 8.5% in the 2020/21 financial year.

Vanessa De Groot, a property and finance writer at REA, points out the overall cost of constructing a new home has been pushed up significantly. Adding to this the lengthy delays in actually getting the materials, which has led to some homes taking more than 12 months to be built, further adding to building companies cost.

With most builders signing fixed-price contracts with buyers and the inadequate margin for escalating costs, many lose every project.

Master Builders Victoria warns many constructions will fold this year as lock-in contracts cannot pass on the rising cost of labour and supplies. Two Queensland firms, Privium and BA Murphy went into liquidation just before Christmas, with customers and subcontractors waiting to find out how much, if anything, they will get from the wash-up.

Jacqui Street (ABC News Sunshine Cost), quoting Lawyer Stephen Burton, “In terms of the builder insolvencies, and I don’t see that getting any better … I do see real risk this is going to get worse over the next six months.

Tips for choosing the right builder

• Make sure the builder has the right insurance cover, to cover you if they go bust.
• If you’re already building, with your home already under construction, buyer should make sure they only make progress payments after somebody has inspeced it to make sure all the work you’re paying for has been done.
• Anyone signing the contract should do their homework and think carefully about which builder they chose, rather than just going with the best price, as it might not be enoufg to complete the building process, is also an option, but those aren’t favoured by banks due to uncertainity.
• Buyers should talk to builders and see if they are confident they can deliver on time and for the price. Make sure all the reference checks are completed before the signing of the contracts.
• Do frequent visits to construction site, to ensure the build is progressing and sub-contractors are on the site.
• If you have already acquired a land, and can wait for another 12 months, then wait until current perfect storm passess.

If you have a building project to discuss, please feel free to email us at yasir@geelongpropertyconsulting.com.