Construction 'probably entering bust cycle' with 92 companies liquidated this year
Friday, 27 May 2022
92 companies in the building sector have entered liquidation this year.
Two of the industry’s largest organisations say the industry is likely at the start of a bust cycle.
The rising cost of labour and materials, combined with falling house prices, are said to be making some builds untenable.
A total of 92 companies in the building sector have gone into liquidation in the year to May 23, according to figures from the Ministry of Business, Innovation and Employment.
The chief executives of Master Builders and the New Zealand Building Industry Federation said the sector was probably entering the downturn phase of the boom-bust cycle, as shortages in labour and materials combine with high costs and falling house prices to make projects untenable.
In the past fortnight, 12 building sector companies have gone into liquidation, according to the Government Gazette, seven of which were either unable to pay outstanding debts or were being investigated for trading while insolvent, according to liquidators.
One of them is Cladtech Plastering Ltd – a family-run Christchurch plasterer focusing on residential properties operating since 2014.
**READ MORE:
* Liquidated company boss speaks out after homeowners share heartache
* Builder Jaden Melgren lived high life before skipping Queenstown leaving debts and incomplete work
**
The husband and wife who owned and operated the company said disruption started with Covid-19 delays and snowballed. The couple have not been named to avoid undue stress.
“We were behind on taxes and GST, and we had a client, I’d rather not mention, who was always paying late, one month, two months behind,” the wife said.
The late payments created a cash flow issue, which required the company to take out business loans.
The pair sold a number of personal items, including three cars and two bikes, to try and keep the company afloat.
“We decided it’s either keeping these, and we wait for someone to close the doors and take everything, or we sell them and use them to pay,” she said.
The couple had never been through a liquidation before and the experience was stressful, she said.
“In eight years we have taken a couple of holidays, we have three kids, we live a really simple life.”
A liquidators report states the company had fallen behind with various Inland Revenue (IR) assessments for PAYE and GST, with about $120,000 owed in GST at the time of liquidation, and about $100,000 estimated owing to unsecured creditors.
Other companies that have entered liquidation in the last two weeks include Raglan Labour Hire Ltd, Oceanside Homes Ltd, Lighthouse Properties Ltd, Tuff Labourers Ltd, Bula Contractors Ltd, Hi-Tech Glass Ltd and Keast Enterprises Ltd.
These follow the high profile liquidations of Wellington construction companies Jonesy Construction Ltd and Armstrong Downes Commercial.
In the past fortnight the Government Gazette also announced eight applications had been lodged in the High Court to take building sector companies liquidation, with most of applications lodged by the commissioner of Inland Revenue.
Ministry of Business, Innovation and Employment building registries national manager Bolen Ng said he had not noticed a trend towards more building firms going bust, with 12 more entering liquidation during the same period from January 1 to May 23 last year.
But Simon Dalton of Gerry Rea Partners, who is involved in the liquidation of Tuff Labourers, said his firm was seeing an increase in enquiries relating to the construction industry.
‘Enquiries from building firms increasing’
Dalton said smaller companies tended not to have sufficient capital to carry them through short term difficulties.
“Many SMEs rely on shareholder or director funding in difficult times,” Dalton said.
“That funding is typically backed by borrowing on the shareholders home which, in the current housing market and the rising interest rates, may be difficult,” he said.
In the case of Tuff Labourers, Dalton said he was not aware of any outstanding projects, and it appeared the biggest creditor was the IR.
Chief executive of Master Builders David Kelly said it was possible the sector was experiencing a short spike in liquidations, but it was likely to be part of a broader trend towards the later part of another boom-bust cycle.
“I’m not surprised businesses in the construction sector are under a lot of pressure, in particular because of the availability of various building products, the rate of increase in costs and the availability of experienced trade staff,” Kelly said.
The current boom has lasted about 12 years, so the country was overdue for a downturn, he said.
This time the bust may play out differently, because there was a lot of work in the pipeline, so the size of the downturn would be dictated by whether there was a slowdown in new orders.
“Consumers are also getting just a little bit wary of where things are at. They’re hearing about cost increase, about material delays, so consumers are just starting to delay their decisions, so that’s classic boom-bust.” he said.
Any buyers who are concerned about their builder or developer should contact them, and not be concerned they might “offend someone’s sensibilities”, Kelly said.
Buyers should also check work stages had been completed before making payments, if they were on a progressive payment scheme.
If buyers couldn’t get an answer, they should approach any professional bodies the builders were part of, such as Master Builders, and possibly consult a lawyer, Kelly said.
Building Industry Federation chief executive Julien Leys said the industry appeared to be moving into the bust part of the cycle, but it was too early to say definitively.
Lays said the industry had not yet seen the impact on smaller builders, many of whom had taken on too much, or been locked into fixed-price contracts that were no longer tenable due to price increases.
CLARIFICATION: This story has been updated to clarify the $120,000 owed by Cladtech Plastering Ltd to the IRD comprised of GST. Updated May 30, 2022, 10.58am.