Mid-sized builders are still facing challenges in the tough economic environment, but the worst appears to be over for the troubled construction industry.
The survivors believe the industry has changed for good, and are demonstrating resilience and an ability to change as they look toward a more positive and profitable future.
A string of home builders have gone broke under the weight of large cost blowouts resulting from big jumps in the price of building materials, staff shortages and supply chain issues.
The collapse of high-profile Porter Davis left many customers out of pocket and facing big construction delays. Australia’s 12th largest home builder left 1800 homes in Victoria and Queensland unfinished when it went into liquidation in March.
The carnage is not confined to home builders, with more than 1200 construction companies going into administration, receivership or liquidation so far in 2022-23, according to the Australian Securities and Investments Commission.
The crisis is forcing the industry to change the way it does business.
‘Past shake-ups, such as the dotcom bust and the global financial crisis, showed companies that survived came out better for it in the end.’Andrew Deveson, director of Kapitol Group
Andrew Deveson, director of Kapitol Group, a mid-size construction firm with more than 230 employees that builds apartments, offices and data centres, says the reality check forced the industry to take stock.
“Supply chain issues and inflation really affected the profitability of fixed-term contracts,” he says.
“Jobs took longer, as delays in obtaining materials, together with their price increases and a shortage of subcontractor labour, were painful. However, it made us look at the ways we manage, to save money and improve.”
He says the order period for some materials blew out from a week to several months, and the war in Ukraine saw timber prices soar.
However, supply chain issues and inflationary pressures are easing, providing the industry with more certainty in predicting the future – especially costs.
Many mid-sized companies – those with 20-500 employees and at least $5 million in annual turnover – are working through most of their unprofitable contracts. New fixed-price construction contracts are being signed at significantly higher prices, with price hikes over the past two years now up to 20 per cent.
The Australian Bureau of Statistics revealed on Wednesday that inflation fell to 6 per cent in the year to June. The annual inflation rate was at 7 per cent in the March quarter.
“Past shake-ups, such as the dotcom bust and the global financial crisis, showed companies that survived came out better for it in the end,” Deveson says. “This time around, it should enable us to get better at what we do.”
Deveson says Kapitol is expanding its digitisation, with online meetings and training improving productivity. It is also championing programs to reduce materials and labour wastage which, industry-wide, can sometimes be up to 10 per cent of contract prices. “Our staff is better connected and communicate more than ever before,” he says.
According to a survey commissioned by business management platform MYOB, almost half of mid-sized builders are aiming to expand their operations in the next year. Almost 40 per cent expressed an interest in broadening their product offerings and exploring new opportunities.
The study, which involved 174 construction and trades businesses, showed 85 per cent believe the industry has changed for the good, and will undergo further significant change in the next five years. Key factors driving the transformation include the adoption of new design and advanced construction technologies.
Kim Clarke, MYOB’s general manager for enterprise, says builders are showing resilience and adaptability. “More than 82 per cent of survey respondents have invested in innovation in the past 12 months. This will help those hungry for growth to keep focus on their operations and ensure they are maximising the productivity and efficiency,” he says.
The financial outlook for the industry is promising, he says, with 63 per cent of survey respondents forecasting increased revenue in the coming year.
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Source: Thanks smh.com