Major Sydney builder folds owing up to $50 million
Sydney-based EQ Constructions has become the latest builder to collapse and join the ranks of the dozens that have folded in recent years.
Millions of dollars in debt owed to hundreds of creditors, dozens of building industry jobs threatened, and a number of large projects now at risk.
In what is becoming an increasingly common scenario in Australia’s construction sector, a major apartment developer in New South Wales has lapsed into administration.
EQ Constructions, which employs around 40 staff and also trades under the name EQ Projects, has collapsed owing at least $40 million, and as much as $50 million, to between 400 and 500 creditors.
Apartment complex projects are now in jeopardy in Parramatta, Bowral and other regional centres throughout the state. The company had also won a $600 million residential development bid to build hundreds of apartments in Zetland, in Sydney’s south.
EQ Constructions’ apparent demise is the latest in a lengthy list of building company collapses that have marred the industry. It is the second this month, after Victorian-based company, Delco Building Group, went into administration on 2 February.
At least two other building companies in Western Australia, and another in Queensland have fallen over in the first six weeks of 2023.
On Monday (13 February), Western Australian building firm Metro Homes WA, which also trades as Hamlen Homes, collapsed into administration with administrators revealing it owes $1.4 million.
Their demise has hit residential buyers, including first home buyers, as it has jeopardised 18 projects. It owes 30 creditors $800,000 as well as a sizeable tax debt.
Administrator says multiple projects at risk
Insolvency notices indicate that Shumit Banerjee from Westburn Advisory has been appointed to handle the administration.
Mr Banerjee was quoted by other media sources as saying there are numerous projects in various stages of completion.
“There are ongoing projects and these are at different stages – some are at defect liability period and some halfway through, so it’s a mixed bag,” he said.
“There’s quite a major project in Bowral, there’s a large apartment block in Parramatta and the rest are scattered throughout NSW.
“The director is looking to restructure the company and offer a deed of company arrangement and no staff have been laid off – there are approximately 40-odd staff.”
Few signs of improvement for builders
The construction industry has seen a spate of collapses, as rising labour costs, extreme weather, global supply chain issues and materials shortages have hit them hard.
At least 20 construction companies in Australia folded in 2022.
Dyldam Developments, Hotondo Homes franchise Tasmanian Constructions, ABD Group, Privium BA Murphy, Pindan, Oracle Platinum Homes, Pivotal Homes, Inside Out Construction, Home Innovation Builders and New Sensation Homes have all gone bust recently.
Projects completed by the builder include The Lennox in Parramatta and The Pinnacle in Liverpool.
“The director is looking to restructure the company and offer a deed of company arrangement, and no staff have been laid off,” Mr Banerjee told media.
The woes besetting the building industry do not look like lifting in the immediate future.
Building approvals were down 22 per cent at the end of the year (the latest data available) and with more interest rate hikes likely, an improvement in business conditions appears distant.
There were 115,358 new houses approved for construction in 2022, down by 21.8 per cent on the 147,552 approved in 2021.
The Australian Bureau of Statistics data noted a 2.4 per cent decline in house approvals in December 2022, to 8,989, the second weakest monthly performance in the last two-and-a-half years.
Tim Reardon, Chief Economist, Housing Industry Association, said much of the decline between 2021 and 2022 was the expected consequence of the end of the HomeBuilder grant in 2021.
“The market was also cooling as the cost of construction rose, and the change in consumer preferences due to the pandemic desire for space, eroded.
“The adverse impact of the fastest increase in the cash rate in a generation will not be fully observed in building approvals data until later this year and will not hit building activity on the ground until late 2023.
“The significant pipeline of work that Australian builders are still completing, combined with ongoing materials and labour constraints, is creating significant lags between the RBA’s hiking cycle and on-the-ground activity.
“This lag from the first rate rise until it impacts employment is dangerously long in this cycle. The RBA needs to be very cautious in raising rates as the impact of their actions won’t be observed in official data for nearly 18 months, in this cycle.
“The multi-unit sector also contracted further between 2021 and 2022, despite the expected return of overseas migrants, students and tourists, and the ongoing tightness in rental markets.”
Supply issues holding construction industry back
Master Builders Australia’s Deputy CEO, Shaun Schmitke, said builders hope to see a sustained increase in high density dwelling construction.
Although the flow of approvals was weaker than a year ago, he said there was a turnaround on the previous month’s data.
“According to the ABS, new home building approvals bounced back sharply during December 2022, with 18.5 per cent more new homes approved.
“December’s performance was driven by higher density homes, which jumped by some 58.8 per cent during the month, while approvals for new detached houses dipped by 2.4 per cent during December.
“Higher density home building approvals are particularly sensitive to interest rate movements and have been on the way down over most of 2022 until a sharp jump in December.
“The stronger performance of medium/high-density home is welcome, and we hope this will be sustained as renters are crying out for more new apartments and units.
“Latest inflation data shows that rental costs are increasing at their fastest rate in a decade.
“Further increasing the supply of new apartments and units will be crucial to addressing housing affordability challenges in the rental market.
“Australia’s capacity to absorb the inward migration in the volume we need will depend on having an abundant supply of rental accommodation,” Mr Schmitke said.
For detached houses, the continued reduction in activity follows the achievement of record output during the pandemic.
“Detached house building is being held back by insufficient supplies of titled residential land,” Mr Schmitke said.
“Since the pandemic, demand for housing in regional markets has increased significantly.
“There are particular concerns that land supply bottlenecks are an obstacle when it comes to new home building that is impeding their wider development.”