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Collapse fears as half of construction companies are trading at a loss

Collapse fears as half of construction companies are trading at a loss

Construction workers have regular nervous breakdowns and mourn their colleagues and family, as 80 percent of construction companies lose money.

The Australian construction sector is in dire straits with up to 80 per cent of construction companies losing money, according to an industry expert.

More than half of the estimated 12,000 construction companies in the country are reportedly trading at a loss, with many on the verge of collapse.

And those who work in the industry have regular mental breakdowns and mourn their colleagues and family as the pressure to survive mounts.

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

“Eighty percent of builders in Australia have lost money in the last 12 months. That is horrible,” she added.

“Around 50 per cent of construction companies in Australia currently experience negative equity.

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

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

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

Multiple builders have already collapsed in the last six months across the country, both small and large, leaving employees, contractors and customers in the lurch.

There are between 10,000 and 12,000 residential construction 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] it’s where the company loses so much money that it has negative equity,” explained Mr. Stephens.

The second step is insolvency, at which point the company is essentially finished.

“It is not illegal to trade negative stocks, but it is illegal to trade insolvent,” he said.

“However, the two are mixed, it becomes very vague. Operating with insolvency is a bit of a gray area.”

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

“Drains the builder for a long period of time.”

To make matters more difficult, strict regulations mean that once a builder reaches a point where they have a negative net worth, it’s nearly impossible to eke out unless they can get a massive injection of cash.

“If 50 percent have negative net worth, they can continue legally but they can’t renew their license,” he said.

As a result, he heard rumors that governments might be throwing a lifeline to builders, as they might be looking relaxing the requirements for these companies to maintain their licenses.

“If the rules were followed as intended, half of the industry will disappear,” he added.

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The construction industry has been badly affected by this year’s collapses.

Two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, have already been liquidated this year.

Smaller operators such as Hotondo Homes Hobart and Perth-based companies Home Innovation Builders and New Sensation Homes, as well as Sydney-based company Next, have also collapsed, leaving owners penniless and with unfinished homes.

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

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

An industry insider told news.com.au earlier this year that half of Australia’s construction companies are on the brink of collapse due to insolvency, and the housing of thousands of people could be affected. people in the coming months.

Stephens said the situation was having a direct impact on the mental well-being of people in the sector.

“Mental health is becoming a very important issue in the industry,” he said.

“The financial pressure is just huge. We are hearing many cases of builders breaking down and crying.

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

“I have never seen so many builders leave the industry, they are closing or going to work for other people, it is unprecedented.”

Stephens also said that the government’s stimulus packages had exacerbated the situation and, ironically, may have put 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 sector.

Eager first-time buyers jumped in, but now, two years later, rising prices, supply chain problems and higher material costs are bringing builders to their knees.

“The government stimulus added fuel to the fire,” he said.

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

“The problem is that they have not been able to build three or four times the number of projects.

We said at the time that it was not justified, that the government was ill-advised, anyone within the industry could see that.”

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Originally published as ‘Wiped out’: ‘Horrifying’ claim about collapse of Australia’s construction industry


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