Referring to the recent failures of building companies such as CMF Projects, CKP, and Cullen, the Courier-Mail this morning observed:
…we hear that even the higher profile builders (household names actually) are getting nervous with soaring costs cutting into profits, despite a bulging work book.
With a Queensland election on the horizon the state of the construction industry will be a hot topic and the blame game has already kicked off in earnest.
Unfortunately for the State Government, the construction industry appears to be on a downswing, with residential construction having peaked in the current cycle at the end of last year, and with non-residential construction yet to recover after plummeting at the end of the mining boom. Building approvals, which are a reasonable leading indicator of residential construction activity, have fallen substantially recently (see the chart below reporting ABS estimates of building approvals to March quarter 2017 and residential dwelling investment from the Queensland State Accounts to December 2016, the latest data available).
The AFR’s Matthew Cranston has recently provided a good summary of the troubles affecting construction companies (Apartment builder CMF Projects in administration), noting that, for CMF Projects, which had been focusing on apartment projects:
It is understood the builder had been under pressure with delays stemming from its unionised workforce, competition among builders and a sudden pull back in new apartment project plans in Brisbane…
…The number of apartment projects that have either started or been mooted for development has collapsed due to tighter financing from banks, stricter rules on both foreign and domestic investors, and rising construction and labour costs.
Construction is definitely a sector to watch closely in Queensland over the rest of 2017.
Gene what is if most concern is the proposed sub contractor legislation, whilst the legislation is required its timing couldn’t be worse, the industry just isn’t prepared. Many currently don’t have the cashflow to be able to comply with the new laws and rely on revolving credit to contractors and suppliers to survive. Many suppliers to the industry that I talk to have already acknowledged they will be last on the list now as sub contractors will be paid before suppliers, accordingly many suppliers have begun to enforce their credit conditions more rigorously, it is all starting to point to a nasty conclusion.
Yes, thanks Glen. Good points. Interesting info regarding unintended consequences