Expert warns that builder insolvencies could disrupt Australian home buyers’ plans

Some Australians may find their path to home ownership obstructed due to challenges faced by the construction industry, such as insolvencies, rising material costs, and workforce shortages.

Buying “off the plan” involves acquiring a property that is either yet to be built or still under construction, which was previously seen as a feasible option for first-time buyers who could benefit from grants or stamp duty concessions.

There is a possibility of more opportunities arising for this type of purchase as both state and federal governments have committed to constructing millions of new homes in the next three decades to address the housing crisis.

However, purchasing off the plan may now entail more risks, as stated by Compare the Market’s property expert Andrew Winter.

Statistics from the Australian Bureau of Statistics reveal that 73,405 construction businesses ceased operations in the 12 months leading up to June 2023 due to supply chain issues and labor shortages.

“If the builder becomes insolvent, there is a risk of losing your deposit,” Mr. Winter cautioned.

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Additionally, sunset clauses may enable builders to refund a homebuyer’s deposit and cancel the contract if construction is not completed by a specific date.

Despite some states implementing changes in legislation to safeguard off-the-plan buyers, units are typically excluded from such protections.

“There’s also a chance that the final construction may fall short of your expectations, as you haven’t had the chance to inspect the property in person but are relying on the plans and specifications provided by the developer,” commented Mr. Winter.

Denita Wawn, the chief executive of Master Builders Australia, an organization representing the building and construction industry nationwide, mentioned some optimism within the industry.

“Master Builders and its members have been collaborating with other industry stakeholders to ensure that there are builders and tradespeople available to undertake projects in case of insolvencies,” she informed AAP.

“Fortunately, more businesses are entering the industry than going insolvent, so it’s not all negative news,” she added.

Nevertheless, homebuyers are advised to exercise caution, as emphasized by Ms. Wawn.

“Make sure that the developer and builder have all the necessary checks and balances in place, including insurance, that the contract is appropriate, and that you have a contingency plan for any unforeseen events or delays,” she advised.

Mr. Winter also recommended that Australians review builders’ previous projects to gain a better understanding of what they are getting into.