Build Costs Easing But ‘Pain Will Continue’

The silver lining of the otherwise ominous clouds of the Australian construction industry’s near-perfect storm is that building costs are easing.

But it’s a narrow silver lining, according to quantity surveyor Tass Assarapin.

Construction costs in the 12 months to July last year rose about 12 per cent, says the Mitchell Brandtman partner. They rose by about 7 per cent in the nine months until now.

“Costs are plateauing, but still going up in general,” Assarapin said.  “And there’s a lot more pain to come.”

Assarapin acts on behalf of the financier—their onsite eyes and ears if you like—and says he’s had 10 to 15 builders go broke in the past 18 months. The majority of his clients had to engage a new contractor.

“We act as risk managers in this case, which means if they ask, I will tell them,” Assarapin said.

“Builders are just under so much stress right now.

“If building costs have gone up around 20 per cent in the past two years and a builder’s margin is generally between 5 and 10 per cent, then it’s only maths.

“They’re losing money on every job.”

▲ Assarapin warns it remains a volatile time for the industry.

Hundreds of companies teeter precariously on the brink of collapse. In fact, new data indicates insolvencies in the sector are trending to surpass 2000 for the 12 months to the end of June—the highest in more than a decade.

Assarapin will be one of more than a dozen industry leaders who will take part in The Urban Developer’s Sydney residential developer summit on May 11.  The one-day, in-person conference will explore residential apartment, townhouse and greenfield development in and around Sydney.

Assarapin warns it remains a volatile time in a volatile industry.

“And it’s definitely still a time where we’ve all got to be cautious. And make sure due diligence is done on absolutely every level, because it can still go bad, there is a lot that can go wrong.”

The industry will survive, he said.

“I mean, it’s a very big an industry, there are many players around and they are going to keep going.” 

“But I do believe there will be another year at least, where we’re going to see these insolvencies keep happening.” 

The Urban Developer Sydney Residential Development Summit will take place on Thursday, May 11. Click here to register and learn more.