Have you considered the risks of buying a house and land package in 2023? The collapse of Melbourne-based Porter Davis, the country’s 12th largest home builder, has halted the construction of 1700 homes in Victoria and Queensland after it was unable to find a financial backer to cover its $20 million funding shortfall.
As a result, the majority of Porter Davis’ customers, who are on fixed contracts, will likely face up to 30% higher costs than estimated on their original contracts when a new builder takes over.
Porter Davis is not the first home builder to collapse, and unfortunately, it is unlikely to be the last. In the past year, two other giant builders, Probuild and Condev, went into liquidation, and even Australia’s largest home builder, Metricon, narrowly avoided administration.
According to data and analytics firm Equifax, construction insolvencies have increased by 90% in the last financial year. In addition, the Association of Professional Builders (APB) reports that over half of Queensland’s $48 billion building sector is currently insolvent, with some firms losing up to $40,000 on each job.
Builders across the country who have signed fixed contracts are being impacted by rising costs and a shortage of labor, which is contributing to an increase in insolvencies in the construction sector.
7 News reported that the collapse of Queensland builder Privium cost a family $165,000. Another family suffered a financial loss of $250,000 after their builder, Inside Out Construction, went into administration, as reported by ABC News.
In summary, the insolvency of your builder can be a very costly and stressful experience. Moreover, finding another builder willing to take over work that has already been started by a previous builder is extremely challenging.
So, if you are considering:
- Buying a house and land package
- Building a new property or
- Developing a property
It is essential to be cautious.
You need to minimise your risk and protect your wealth during this challenging time to avoid any future troubles.
Sophisticated buyers/home builders can conduct due diligence on the construction industry and the risks involved in building a property in the current construction situation before deciding whether to build or buy an existing property.
An informed and sophisticated buyer can assess the risk and the potential consequences of building in this construction situation and avoid it if they cannot mitigate or manage the risk. This is what an informed buyer or home builder can do, and it is why we suggest never to be an average!
Talk to an independent buyer’s agent who doesn’t “sell” house and land packages for unbiased advice. Avoid buyer’s agents who push you to buy house and land packages.
If you want to learn more about the pros and cons of building a property, I suggest reading this article before making any decisions.
