The capital city property market sending builders bust
Undertaking a new home build or buying off-the-plan always present a degree of risk but that uncertainty is heightened in one major Australian city.
Perth’s property market has been Australia’s strongest performer over the past 12 months, with dwelling values surging 21 per cent in 2024.
This growth, however, is being shadowed by a construction sector in crisis.
Builder collapses are becoming alarmingly common, leaving investors exposed and projects in limbo.
This is due to continued instability in the cost of materials and labour, as well as protracted construction times in the Perth market. While construction costs have stabilised in many other states of Australia, Perth is still feeling the pinch.
Michael Mackinnon of Suburbanite Property, a qualified valuer and buyers’ agent based in Perth, said building project delays were crippling.
“Everyone is talking about the number of approvals coming through in Perth, but they don’t realise it is often taking two or three years to complete a project, even just a single dwelling, due to delays in both trades and materials.
“If construction delays are still taking this long, it means there is pressure for buyers to come into the established market and that is only going to push prices up.”
Driving around the Perth suburbs, it is not uncommon to see slabs sitting untouched for years, revealing the true impact of construction delays and cost overruns.
Major builders collapse
In early 2025, Mercedes Group—trading as Zorzi Builders and Grandwood Homes—went into administration, with debts nearing $3 million. Once considered a luxury icon in WA home building, the Zorzi brand’s downfall shocked many in the industry.
Soon after, Inspired Homes also collapsed, leaving around 80 home owners and investors in limbo—some waiting since 2020 for homes that were never completed.
While home indemnity insurance can offer up to $200,000 in protection, it often falls short of the true cost to finish these builds in today’s inflated construction environment.
A convergence of systemic pressures has created a volatile environment:
Fixed-price contract fallout: Builders locked into fixed-price contracts during the 2020–21 stimulus rush are now absorbing sharp cost increases in labour and materials, leading to significant losses. Without the ability to pass these costs over to the property owner, builders are absorbing the cost overruns.
Supply and labour shortages: Delays in materials and a shortfall of skilled trades are driving costs up and causing extended project timelines.
Cash flow collapses: With projects stalling and overheads rising, many builders simply run out of cash—triggering insolvency.
As a result, construction insolvencies have surged across WA, compounding risk for off-the-plan buyers and investors financing new builds.
For investors, this means:
Project uncertainty: Even with solvent builders, delays, cost overruns, and trade shortages are widespread.
Insurance gaps: Government-mandated indemnity insurance rarely covers the full financial fallout of a collapsed build.
Asset stagnation: Incomplete properties generate no rental income.
Off-the-plan risk management
So, this raises the question, should investors still consider a new build or off-the-plan options, or do they simply stay well away from this sector for now?
Buying an established property is certainly the lowest risk option but for investors with an appetite for a riskier new build, there are some protective measures that can be put in place.
One of the most effective risk mitigants is the use of well-structured progress payment clauses in building contracts.
These do not apply to an ‘off-the-plan’ apartment but can be used in a fixed-price building contract. These clauses ensure payments are only made after specific stages of the build are completed and certified. Common stages include:
- Slab down
- Frame up
- Lock-up
- Fixing
- Practical completion
By tying payments to milestones, rather than fixed dates, investors can avoid front-loading funds into projects that may falter midway.
This arrangement also places financial pressure on builders to complete each stage to quality standards and within timeframes.
Most importantly though, if the builder falls over during the build, the property owner should retain enough funds to complete the build, as they have not paid for work that isn’t done.
Progress payments are not foolproof. If a builder collapses mid-project, getting another builder to complete the build has its challenges with warranties, quality of workmanship, insurances and the likelihood the cost to complete will be revised to a much higher amount.
Established housing will remain in demand
With so much volatility in the construction space, savvy investors are shifting their focus towards established housing. The reasons are compelling:
- Immediate rental income: No wait times, no construction risk.
- Known costs: No exposure to future cost blowouts or trade delays.
- Stronger buyer demand: As new builds stall, demand is intensifying for turnkey homes, pushing prices up in established suburbs.
At a time when supply of new housing is constrained by financial stress and builder exits, established homes represent a safer, more reliable option for investors seeking capital growth and income stability.
Perth remains a compelling investment market—but the rules have changed. The collapse of respected builders like Zorzi and Inspired Homes has shown that even premium operators are vulnerable.
Investors considering new builds or off-the-plan purchases must exercise extreme due diligence, seek sound legal advice on contracts (especially around progress payments), and weigh the benefits of established properties in a high-demand, low-supply environment.
In 2025, caution is not just advisable—it’s essential.
