Building Your Home? Beware of This New Risk
Signing a contract for a new home build can be nerve-wracking, and there are solid numbers of Australians on this journey.
In numbers: Australians building their homes
According to the Australian Bureau of Statistics, there were almost 10,000 approvals to build private-sector dwellings in March, a three percent drop from the previous month.
Meanwhile, the Housing Industry Association (HIA) reported sales of new detached homes dropped 1.2% in April. Despite the drop, that’s still stronger sales than the same time last year.
And new home building starts will increase progressively from next year to 178,220 estimated to be built in 2025, according to Statista.
More building companies going bust
However, not all is well in the home building sector. News media features regular reports of building companies nearing collapse. Those which have already been liquidated include Condev, Probuild, and Hotondo Homes Hobart, with the Association of Professional Builders estimating that half of builders are trading while insolvent.
If working to a fixed-price contract, the companies have to absorb, at times, an extra $150,000 in higher building costs per home. Sadly, this is not sustainable.
Here are some reasons why builders across the sector are going under:
- Disrupted global supply chains
- Higher prices for timber and other building materials
- Paying increased workers’ wages due to the skills shortage
- Catastrophic floods on the eastern seaboard have pushed up demand as people rebuild their homes
- Rescheduling due to repeated COVID-19 infections affecting workers and sub-contractors
- The interest rate rise prices would-be homeowners out of the market, reducing demand, so, builders in the red, but surviving on cashflow, are at risk.
Don’t go with the cheapest quote
It can be a gamble to accept the cheapest quote from a builder. The reality is that across the construction sector, inflation is expected to reach 9.5 % over the 12 months to this month [June], according to a Macromonitor report. If you have accepted a quote, you’ll need to ask for a revision, say six months down the track. Builders who haven’t increased their prices may not be in business for much longer. A good yardstick is to check the quote every 90 days to track price increases.
How to protect yourself
Whether or not you’ve signed for a new home build, consider these tips:
- Be wary of builders who are ready to start immediately because most have a 12-month lead time
- Only use a highly recommended builder add after you’ve done your due diligence
- Avoid builders whose licence on the public register says “only for contracts not requiring home warranty insurance” because no insurer has approved them
- Ensure the builder’s name on the insurance certificate matches the building contract and builder’s licence, or you won’t be able to make an insurance claim
- Have a buffer of funds because chances are your contract price will increase
- Appreciate that costs are unlikely to decrease in the short term
- Be open to renegotiating your contract, compromising on particular finishes, for example, if they’re not available due to supply chain issues.
Your state or territory may legally require you to take out home warranty insurance before work starts for building work over a particular threshold.
A home warranty insurance policy will protect you as well as any subsequent owner should the contracted building work be unfinished, or the builder can’t fix the defects. This cover comes into play when the builder dies, disappears, or becomes insolvent, and, in some parts of the country, due to failure to respond to a court-issued rectification order.
We can help you sort out the best-fit policy to protect what will become one of your most significant assets.