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Construction Industry A $360bn House of Cards

construction industry

Australia’s construction industry is a $360-billion house of cards teetering in a profitless boom in which builders big and small are going bust—and warnings from its coalface indicate the worst is yet to come.

According to industry leaders, long-established cracks in the sector’s foundation are now so wide that it is “totally unsustainable” and in need of urgent major reform if it is to have the capacity to build projects that need to be built.

Up to 25 per cent of all insolvencies in Australia are companies within the construction industry.

“It’s a bit of a shocking statistic,” says Australian Constructors Association (ACA) chief executive Jon Davies. “Particularly when you look at it in terms of the industry’s contribution to the economy (8 to 10 per cent of GDP) it’s a disproportionately high level.

“At the moment you are hearing a lot of people talking about a ‘profitless boom’ and it has been a reality.”

“But the bigger issue is not so much the profit margins, it’s the willingness of our industry to accept risks that they really aren’t able to quantify, and they really shouldn’t be trying to, from clients that are more than happy to try to pass those risks onto them.

“So you have this race to the bottom where a lot of contractors, who are still trying to recover from years and years of under profitability, are saying ‘yeah, we’ll take on that risk, we’ll price that’.

“Then that risk comes to pass and suddenly they realise they’ve got a big problem and in a world of hurt.”

But according to Davies, the cracks in the industry run far deeper than boom-bust cycles and a lack of profitability.

“We have a real cultural problem within our industry,” Davies says. “We’re a very adversarial industry and that has created inherent issues in terms of productivity, mental health and diversity.

“And yet now you’ve got a situation where the government is relying on that industry with all these problems to lead the economy forward.

“However, there’s a real concern around capability and capacity to respond to and deliver on that record pipeline of work.”

One of the most recent casualties of Australia’s construction crisis is Perth-based Pindan Group—the head contractor for a number of WA government projects—which was placed in external administration in May owing creditors $80 million.

It joins a growing list of high-profile company collapses, including one of the country’s biggest construction firms, Melbourne-based building empire Grocon.

‘It’s a shambles’

“Much worse is to come. This is just the start … it’s a shambles,” says Scott Hutchinson, the chairman of one of Australia’s largest private construction companies, Brisbane-based Hutchinson Builders.

“It’s completely overheated. It’s getting ready to explode and for people to go down.

“In 12 or 18 months there’s likely to be a lot of builders going broke and most of them don’t know it yet. Then we’ll have a flight to balance sheets.

“But at the moment everybody’s just rushing to get trades and buy materials, costs are going through the roof … and that’s when it gets easy to win work because the builders who know what’s going on close their books or put up their prices, and the ones who are desperate for cash flow will bid low and then end up going down massively.”

Hutchinson Builders has a current workbook of 150 projects stretching across Queensland, New South Wales, Victoria, South Australia and Tasmania with a balance sheet of $350 million and an annual turnover of around $3 billion.

Hutchinson says unfortunately company collapses have become part of the “cut and thrust” of Australia’s high-risk, high-pressure construction industry.

“Everybody in the world knows it,” he says. “I was in Paris a few years ago and the big builders over there just said ‘We’re not touching Australia, it’s designed to fail’.

“It’s extremely competitive, there’s no barriers to entry and it’s not a scale game.

“It’s counterintuitive to most industries.

“When your turnover is falling it’s good and when it’s booming and your turnover is going up, it’s bad.”

Gold Coast-based Condev Construction has a workbook of 80-85 per cent multi-level residential developments. Managing director Steve Marais says profit margins are currently “down to 1 per cent and still heading south”.

“With the erosion of profits there’s going to be a bloodbath at some point,” he says.

Marais says Condev has a turnover of roughly $250 million a year but in a recent two-week period alone it had closed its books to a total of $400-million worth of work.

“The boom market is where builders go broke if they take on too much work. I call it the seduction of work and ultimately it will be where the losses are incurred,” he says.

“It’s all about how you manage the risks associated with an upward market swing.”

But he also strongly believes that changes need to be made to help stem the industry’s unenviable and ever-growing list of company collapses.

“At the moment you can keep procuring work unregulated,” Marais says. “I strongly believe that every time a project of over $10 million is procured by a builder, the financial audits should have to be submitted for review.”

Push for change

Leading the charge for major industry reform by example is Alison Mirams, the maverick chief executive of Sydney-based construction firm Roberts Co.

“The risk profile from when I started in the industry 20 years ago is exponentially worse on contractors for no good reason,” she says.

“Contractors generally operate on margins of anywhere between 2 and 5 per cent, but if you fund a $100-million project you have the potential to lose $50 million to $100 million.

“And, unfortunately, they do take on risk that they can’t manage and if one or two of those come home to roost it can be pretty ugly.

“But tell me another industry where when it all goes wrong we essentially hand you the keys to liquidate the company? There isn’t one.

“So how has the construction industry got to the point where that is the accepted norm?

“The whole industry is unsustainable for so many reasons that it needs to recalibrate.

“It’s not just companies going down, you’re losing people out of the industry, you’re losing people to suicides, and we don’t have migration at the moment so we do need people to come into the industry from within Australia—but to get them in, things have got to change.”

Mirams is pushing for a five-day working week in an industry where six-day working weeks and sometimes seven-day working weeks are the norm; a greater focus on bringing women into the industry (only 12 per cent of its workforce are women) to increase diversity; and “fair and appropriate” risk ownership on projects.

Among the $640-million worth of projects on the workbook of Roberts Co is the first stage of the Concord Hospital Redevelopment in Sydney, which it is delivering with a strict five-day working week as a pilot for the Construction Industry Culture Taskforce.

“In the interim report we have just received, 81.4 per cent of the survey respondents said it’s a better way to work,” she says.

“We have not only achieved better health and wellbeing outcomes but we have also achieved increased productivity on site by giving people back their weekends and the project will finish slightly ahead of time.

“This is a very hard industry. It takes a toll on people and I think the pandemic has provided an incredible opportunity to recalibrate and substantially reform how we work.”

Joe Barr, chief executive of Chinese-owned Australian contractor John Holland, last year warned about the dire impact of the massive risks being passed to contractors.

He declared that despite being in the midst of an infrastructure boom the industry was “teetering on the brink of collapse”.

Since then, he says, all key stakeholders have banded together and faced the Covid-19 pandemic, paving the way for change with a focus on developing fairer risk-sharing on major projects.

“We are having constructive discussions with our government customers, peers, and industry associations to reform the industry for the better,” Barr says.

“There is some way to go but I’m confident the industry is holding up well against the challenges of the past year.”

 

Article Source: www.theurbandeveloper.com

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Developments

Southport, Gold Coast apartment development site sells for $6 million

Southport

Sales activity for high-density-zoned development sites in Southport had been relatively subdued compared to the rest of the Gold Coast market

A Southport, Gold Coast development site – once planned for a 47-level tower – has sold at auction for $6 million.

It was bought by an undisclosed Gold Coast investor.

The 2430sq m site is at 114 Scarborough St, on the corner of Hicks St.

The receivers listing was sold by Colliers International who had five bidders compete.

It fetched above price expectations.

“Sales activity for high-density-zoned development sites in Southport has been relatively subdued this year compared to the rest of the Gold Coast market,” agent Steven King said.

“While sites in southern beachside markets continue to attract record prices, this sale demonstrates that Southport has begun its development site rebound,” he told the local paper.

The vacant site is within Southport’s designated Priority Development Area.

It was reported that a NSW-based company and Chinese investors had previously planned a 47-level apartment/hotel tower.

The DA approval was for a 47 level tower comprising of a 225 bed hotel and 264 (1, 2 and 3 bed) apartments

The site had cost $7.65 million, The Gold Coast Bulletin reported.

The site borders the Gold Coast City Council’s recently proposed “Towers Of Power” government and court precinct, a proposed $300 million development.

 

Article Source: www.urban.com.au

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Developments

Mosaic Property Group lodge next Gold Coast apartment development after double Mermaid Beach sell-out

Mosaic Property

Mosaic Property boss Brook Monahan says the development will set a new benchmark of luxury living for an upmarket boutique building

The South East Queensland developer Mosaic Property Group are set for their next development on the Gold Coast.

It’s going to be their most boutique offering yet, with just nine whole floor apartments planned for the Burleigh Heads dress circle The Esplanade.

It will be located just up the road from their successful 47 apartment development Grace by Mosaic, which sold out in just a few months late last year.

The new apartments at 42 The Esplanade, dubbed The Heads in the submission to the Gold Coast City Council, will be designed by the architecture firm bureau^proberts and will replace the current brick apartment block built over five decades ago.

Mosaic Property boss Brook Monahan says the development will set a new benchmark of luxury living for an upmarket boutique building in Burleigh Heads.

“This is a genuinely world-class, one-of-a-kind address,” Monahan told Urban.

“We are pleased to have the opportunity to create another outstanding address in Burleigh Heads, following the success of our first Burleigh project, Grace by Mosaic, which sold out in a matter of months.

“Our primary goal with 42 The Esplanade is to make it the most desirable, exclusive, and in-demand place to live on the entire beachfront in Burleigh.

Monahan says the the design draws on the areas’ natural beauty.

“The composition boasts honest materiality and elegant form,” Monahan says. It is singular in its execution while remaining authentic within the local context.”

In the design statement, bureau^proberts say the architectural design has a strong focus on subtropical building form, with a lightweight and breathable façade, lush green landscaping that continues from the ground level up and around the building, and an organic floor plate that pays homage to the undulating Burleigh headland.

Mosaic Property

Source: Excerpt from Architectural Plans prepared by bureau^proberts. 

Mosaic are already fielding enquiry from their VIP, pre-launch access list.

The Heads will feature a ground level pool, dining and lounge area. The apartments start on the ground level, the first complete with a large 130 sqm terrace with outdoor kitchen and landscaping.

Each apartment above will have balconies over 35 sqm.

Mosaic double-down in areas where they’ve seen great success. They had the same idea in the exclusive Mermaid Beach area, further north on the Gold Coast

After seeing success at Bela, Mosaic bought a site a few doors down on Peerless Avenue and created Dawn, which secured 95 per cent of its sales within its first two weeks of its pre-release to their database.

Development overview:

9 storey built form;

• 9 x 3-bedroom dwelling units;

• Two (2) levels of basement car parking with 29 resident spaces and 3 visitor spaces;

• Ample on-site landscaping and deep planting areas sufficient to contain large shade trees and balance the built form elements;

• Generous communal open space on the ground level and large private balconies for each apartment oriented to the beach;

• Pedestrian access directly off The Esplanade frontage; • Vehicle access to First Avenue via the adjoining development site, 4 First Avenue;

• Highly articulated building envelope with large boundary setbacks and separation to maintain residential amenity and privacy;

• Subtropical architectural design focused on enhancing the character of Burleigh Heads

Design statement

The site at 42 The Esplanade gives new opportunity to acknowledge Burleigh’s beachfront appeal. The tower’s form is sensitive to its site and neighbourhood by responding to the existing Norfolk Pine trees, key aspect views and privacy requirements from its neighbours. The 9, single floor, vertically stacked coastal homes achieve stunning beachfront and headland views by opening the living areas out to the east, with the master bedroom placed prominently to give the residents an unrivalled northern aspect. The glazed envelope is protected down each side with horizontal batten screens which rhythmically move in and out as they rise up the building.

The slab edges move and fold around the building, reaching out to connect its inhabitants with the Esplanades’ parkland, then cutting in to open up views and angle breezes through the interior spaces. The movement of the floor plate is an homage to the undulating outcrops of the nearby headland.

Landscape is employed at the ground level to interact with the street and give space to the existing Norfolk Pine which has been previous been constrained on all edges. This allowance of space is replicated up the building with the southeast corners being cut back to give the tree its breathing space. Vegetation is continued up and around the building, creeping through the screens and with time, will drape and soften the building edges and contribute to the visual and micro-climatic coolth around the tower. As response to the beachfront climate, large outdoor living areas reduce the reliance on indoor conditioning. Breezes are mapped such that openings across and through the plan allow for effective cross ventilation of the interior

 

Article Source: www.urban.com.au

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Developments

Rare Gold Coast Development Site on Offer

Gold Coast

A masterplan development opportunity on the Gold Coast has become available through a joint marketing campaign with Colliers and CBRE.

The Seaview Avenue, Mermaid Beach property represents a 1.13ha development opportunity.

Colliers residential director Brendan Hogan said the site was “an unmatched opportunity to create a staged, mixed-use lifestyle precinct—with concept plans for 735 apartments across four towers”.

“Sites of this scale with wide-ranging potential are increasingly rare and we expect it will be highly sought after by residential and commercial developers alike,” he said.

With the serious lack of high-quality development opportunities south of Broadbeach, Seaview Avenue represented a fantastic opportunity for a developer to lock in their forward pipeline in one of the Gold Coasts most desirable suburbs, the agents said.

Gold Coas

“This property represents a fantastic opportunity for a developer to deliver a staged lifestyle precinct commensurate with James Street and Gasworks in Brisbane supported by heightened demand from people to live, eat work and play within their own neighbourhood,” CBRE Gold Coast managing director Mark Witheriff said.

“The block sits prominently at the entrance to the Pacific Fair Shopping Centre, features three street frontages and provides flexible planning provisions.

“The scarcity of the land available in Mermaid Beach presents developers with a remarkable opportunity to create a destination precinct in one of the Gold Coast’s premium suburbs.

“The property is within a 1km radius of the five major lifestyle and transport facilities in Broadbeach—The Star Casino, Pacific Fair Shopping Centre, The Oasis Shopping Centre, Gold Coast Convention Centre, and Broadbeach South G-Link Station.”

Colliers and CBRE will market the site via expressions of interest campaign that closes on September 1, 2021.

 

Article Source: www.theurbandeveloper.com

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