To address this issue, 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. With major infrastructure projects across all States to boost employment, serious labour shortages between new builds and projects pushed 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. “It's the builders working with owner-occupiers who fall the risk of collapsing and not those working with developers,” says Moxin.
Moxin identifies several signs to help identify owner-occupier builders with cash flow problems. 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 the risk of working with struggling builders, clients should establish clear expectations and conduct thorough research. Contacting the builder's trades to inquire about their payment status and seeking guidance from authorities like the Australian Securities and Investments Commission and the Australian Building and Construction Commission can provide valuable information.
Customers in Victoria can consult The Victorian Building Authority's Disciplinary Register for further research. 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 struggling builders are not always at fault. Despite the misconception that builders lead luxurious lives, many 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 their website at www.helpmebuy.com.au or contact them at email@example.com.
ABOUT INVESTOR PARTNER GROUP
Investor Partner Group is a full-service property investment firm helping new and seasoned Australian property investors across three major areas: (1) Property Advisory & Buyers’ Agency, (2) Property Development and (3) Tax, SMSF and Business Structures Advisory. We make financial independence accessible to the everyday Australian by helping them build a sustainable property portfolio that perfectly matches their lifestyle.
Investor Partner Group is positioned across the entire property value chain to help make property investment more accessible for everyone. The company helps complete beginners just starting to dip their toes into the property market right up to seasoned investors looking for contemporary investment strategies.
MORE INFORMATION ABOUT MOXIN REZA
Moxin Reza, a well-known property strategist, founded Investor Partner Group out of his love for assisting people in increasing their wealth through real estate investments. He considers buying a home among the most important investments anybody can make, so he is committed to assisting others in making the most of their real estate investments.
Apart from Investor Partner Group, Moxin offers a podcast that discusses modern approaches to real estate investing, how to get from mediocre to high-net-worth investors, and how to do all this without compromising your lifestyle. He offers his expertise in real estate investing, which he has acquired over his career as a property strategist, through his podcast.
Investor Partner Group and Moxin Reza's podcast is an excellent place if you want to learn more about real estate investing or need assistance buying or developing a home.
Farah Shah, Head of Marketing for Investor Partner Group:
Ph: +61 468 786 850
Investor Partner Group: