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The construction sector is grappling with a severe crisis, experiencing a staggering 72 per cent increase in insolvencies during the financial year 2023, which has been presenting new challenges for brokers.
According to the Australian Securities and Investment Commission (ASIC), a total of 2,213 Australian building companies entered into liquidation in FY23, compared to 1,284 the year before, marking a 72 per cent increase.
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Out of these collapses, 621 occurred in Victoria, with a striking 981 in NSW over the year.
While smaller builders have borne the brunt of this turmoil, large construction corporations have also faced high-profile issues, including BGC Housing Group, Clough Group, Porter Davis, Lloyd Group, EQ Construction, ProBuild, and Metricon.
The collapse of Porter Davis underscored the distress caused by these failures when customers who had signed tender agreements found themselves ineligible for Victorian government compensation and were left tens of thousands of dollars out of pocket.
The issue hit close to home for Mark Polatkesen, Director at Mortgage Domayne, who witnessed one of their own brokers fall victim to the same fate when Porter Davis collapsed.
“They poured the slab then went into liquidation, our broker had to claim insurance and was paid out for their claim,” Mr Polatkesen said.
Thanks to the brokerage’s builder network, he managed to secure another builder at a cost similar to the old contract and the project continued within a six-month period.
Mr Polatkesen explained that when a company goes into liquidation, they reach out to the clients and proactively guide them on their options.
He detailed they assist clients by helping find another builder and signing a new contract, noting that existing loans can often remain intact if the client can secure another builder.
“Once they get the builder and contract, we will then need to supply this information to the lender and redo the application process and valuation,” Mr Polatkesen said.
“Usually the new builder will have to build to the outgoing builder’s plans but it’s a fairly easy process.”
Given that 70 per cent of Mortgage Domayne’s business revolves around construction finance, Mr Polatkesen emphasised the importance of educating and guiding their clients.
“We need to also ensure the client’s financial circumstances haven’t changed and if they no longer meet the lending guidelines, we find a new lender that will suit the client’s needs,” Mr Polatkesen said.
However, managing director and finance broker at Loan Market in Geelong, Sarah Thomson, said she had witnessed many clients struggle to find another company when the project is left mid-build.
“This has happened at many different stages throughout the build ranging from the beginning to the second last stage,” Ms Thomson said.
She shared a recent client’s experience, who faced a company collapse very close to project completion.
Fortunately, they were able to negotiate with their lender to increase the loan amount to cover the remaining stages of construction.
“[The lender’s] understanding was fantastic and we were lucky to see this result,” Ms Thomson said.
She added that the increase in build costs has “dramatically affected” many of our clients and has been extremely stressful.
“Many have received an email asking for $20,000–$30,000 to be paid in addition to their existing contract to be able to see the property be built,” Ms Thomson said.
As a result, clients had to resort to personal loans, using their savings, or borrowing money from family members until they could adjust their home loan post-construction.
“We are working with clients to try and ensure that there have been detailed conversations about any increases,” Ms Thomson said.
When dealing with construction companies facing liquidation, Ms Thomson said they proactively reach out to all their clients to determine how they can provide assistance, which includes contacting the builder to understand the full costs.
“It has become increasingly important for brokers to play a big part in the education of the clients and explaining the risk and processes,” Ms Thomson said.
[Related: Victoria building collapse support scheme extended]
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