KEY POINTS:
- Porter Davis is among the home builders that failed over a 12-month period.
- The homebuilding industry is under pressure due to high demand and labour shortages, Master Builders Australia says.
- Those affected by a builder's collapse can make a claim on builders warranty insurance but may face additional costs.
You've settled on the design, paid the deposit, and are eagerly awaiting the completion of your new home.
Then, you hear news that your builder has collapsed.
It's the stuff of nightmares, and a reality facing customers of home builder Porter Davis, which announced last week that it would enter voluntary administration.
The company had more than 1,500 homes in progress across Victoria and 200 properties in Queensland, with a further 779 customers with signed contracts for new builds yet to start.
Just hours later, civil design and construction firm Lloyd Group announced it had also appointed administrations. The pair were the latest to fail in a 12-month period in which Probuild, ConDev, and the Oracle Building Corporation also collapsed.
Why are some home builders struggling?
Denita Wawn is the CEO of Master Builders Australia.
She said the homebuilding industry is facing pressure due to high demand, part of which was spurred during the height of the COVID-19 pandemic when the federal government
"We saw a huge spike in demand for new home builds and renovations... and the time that the builders signed their contracts, which are normally fixed-priced, they did not foresee the significant increases in inflation," Ms Wawn said. "They knew labour shortages would be bad, but they did not forecast it would get this bad."
Master Builders Australia CEO Denita Wawn. Source: AAP
"We're seeing time blowouts and cost blowouts, and if its a fixed-price contract, that cost blowout is borne by the builder."
What should you do before signing a building contract?
Check the builder's licence, said Richard Hutchings, a partner at law firm Cornwalls.
"Check if there's any suspensions or cancellations connected to their building licence or evidence of any litigation or disciplinary process."
Mr Hutchings said it was also worth researching the builder's project history and asking about its financial position.
But it is, ultimately, difficult to establish whether a builder could become insolvent.
"Builders with a range of jobs across the country or a state from time to time may be in a stronger or weaker financial position," he said. "It's difficult to know, and there's really not much you can do."
What happens if my builder collapses?
Builders typically have to take out domestic building insurance — which can have a different name depending on what jurisdiction you're in — for work that will cost above a certain amount. Generally, a builder must take out a policy and provide it to the owner before accepting payment.
Among the claimable events on these policies is if a builder goes broke and leaves work incomplete. But some might face a situation where they need to come up with extra money to cover a shortfall.
"The normal process is the liquidator, as well as the insurers, will be in touch with clients to ensure that the client is not adversely worse off, but we do know that there will be unforeseen costs associated with that," Ms Wawn said.
It's difficult to establish whether a builder could become insolvent, according to Richard Hutchings, a partner at law firm Cornwalls. Source: AAP / Mick Tsikas
"There's a recognition that when builders go under, owners are left with considerable losses," Mr Hutchings said.
"And the losses that they face include rectifying possible defects, and the extra costs to complete the works.
"So if your builder falls over and you ask a new potential builder how much it's going to cost to rectify defects and finish the project, they might quote for considerably more than the balance of the contract."
Affected customers should make sure any future scheduled payments have been stopped, and they should contact their bank to request a chargeback if any payments were made by credit, said Stephanie Tonkin, the CEO of Consumer Action Law Centre.
Keep across information issued by liquidators, and ensure your claim of debt is submitted to them quickly, Ms Tonkin said.
"You want to get your claim in quickly so you're not further down the line of creditors," she said.
She also recommended seeking legal advice, although she acknowledged there may be few no-cost options.
"There isn't a heap of free legal help out there for people in these circumstances," she said. "But if you can afford it, it can be useful to arm yourself with the right information."
What's the latest with Porter Davis?
Liquidators Grant Thornton have been working with staff, certifiers, and homeowners to find solutions for properties close to completion.
The liquidators that are expected to qualify for occupation certificates and are capable of being completed given how close they were to being finished.
Porter Davis staff will contact those customers to advise them of the next steps.
Grant Thornton will introduce others to replacement builders in the coming week so they can discuss how their build will be finished.
More than 20 builders have offered to help complete homes for Porter Davis customers.
The Victorian government is also investigating whether Porter Davis illegally left customers uninsured after taking their deposits.
- With AAP.
Disclaimer: This article is general information. Please see a professional if you need legal or financial advice.
