Construction workers regularly have mental breakdowns and cry to colleagues and relatives as 80 percent of construction companies bleed money.
Australia’s construction industry is in turmoil with as many as 80 percent of construction companies coughing up money, an industry expert said.
More than half of the country’s estimated 12,000 construction companies are reportedly trading at a loss, with many on the brink of collapse.
And those who work in the industry regularly have mental breakdowns and cry to colleagues and relatives 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’s horrible,” he added.
“Around 50 percent of construction companies in Australia are currently experiencing negative equity.
“About 25 to 30 percent [of these companies] cannot pay their bills on time.”
A company 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 to become insolvent, he warned.
Multiple builders, both small and large, have collapsed across the country in the past six months, leaving workers, contractors and customers in the lurch.
According to APB estimates, there are between 10,000 and 12,000 housing companies in Australia undertaking new homes or major renovation projects.
At least half of these have negative equity.
“The first step [of a company collapse] is where the company loses so much money that it has negative equity,” explains Stephens.
The second step is insolvency, after which the business is essentially done.
“It is not illegal to trade with negative equity, but it is illegal to trade insolvent,” he said.
“But those two are mixed up, it’s getting very vague. Acting insolvent is a bit of a gray area.”
He said this whole process was “a very slow painful death for a construction company”.
“It wears out the builder over a long period of time.”
To make matters even more difficult, strict regulations mean that once a builder reaches a point where they have negative equity, it’s nearly impossible to work their way out unless they can get their hands on a massive cash injection.
“If 50 percent have negative equity, they can legally continue but cannot renew their license,” he said.
As a result, he has heard rumors that governments may be throwing a lifeline at builders because they could be looking at… easing the requirements for these companies to keep their licenses.
“If the rules are followed as intended, half the industry will be wiped out,” he added.
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The construction industry has been hit hard by collapse this year.
Smaller operators such as Hotondo Homes Hobart and Perth firms Home Innovation Builders and New Sensation Homes as well as Sydney-based company Next have also collapsed, leaving homeowners with unfinished homes.
Metricon, Australia’s largest construction company, received a $30 million cash injection after rumors circulated that the company had entered crisis talks.
A Industry insider told news.com.au earlier this year, half of Australia’s construction companies were on the brink of collapse due to insolvent trading, and the homes of thousands of people could be affected in the coming months.
Stephens said the situation has a direct impact on the mental wellbeing of people in the sector.
“Mental health is becoming a very big problem in the industry,” he said.
“The financial pressure is just enormous. We hear many cases of builders breaking down and crying.
“We are looking for support groups for every builder, whether they are members of APB or not.
“I’ve never seen so many builders leave the industry. They close their doors or they start working for other people, it’s unprecedented.”
Stephens also said the government stimulus packages had exacerbated the situation and ironically could have put the final nail in the coffin.
In 2020, as the economy languished with the advent of Covid-19, the federal government announced the HomeBuilder program to encourage financial activity in the construction industry.
Enthusiastic first-time homebuyers jumped on board, but now, two years later, price inflation, supply chain problems and higher material costs are bringing builders to their knees.
“Government stimulus has fueled the fire,” he said.
“The large construction companies were able to sign three to four times the normal number of contracts.
“The problem is they haven’t been able to build three or four times as many projects.
We said at the time that it was unjust, that the government was being badly advised, that everyone in the industry could see it.”
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