Since June, at lest six home builders in Australia have gone bust. Builton Group is the latest, with 80 Homes in Limbo.
Burswood-based builder Builton Group, which trades under the brands Platinum Homes and Aspireon Homes, seems poised to join the growing list of residential builders in Western Australia gone bust.
WAtoday understands around 80 homebuyers could be impacted, with approximately 50 homes under construction and around 20 to 30 at the pre-start stage.
Calls to its offices on Friday went unanswered – and WAtoday understands the company’s staff, up to 90 people, had been told not to come to work on Monday.
The expected closure comes two months after Collier Homes went into liquidation in November and high-end builder Quattro Homes being placed into administration in September.
Pitaro Homes and Nominated Homes went into liquidation in August following the collapse of Geraldton-based builder Shane Crothers Homes in June.
Out of Business
- Builton Group
- Collier Homes
- Quattro Homes
- Pitaro Homes
- Nominated Homes
- Shane Crothers Homes
Mike “Mish” Shedlock
The West Coast of Oz has felt the pain of property price downturn after the mining industry slowdown over there (less money from Iron Ore to China)… the big one for Oz is the East Coast market where most people live. Particularly the 2 main cities Melbourne and Sydney… No real signs of a downturn yet. Prices propped up by foreign cash, immigration and a govt. very reluctant to prick the bubble
LikeLike
The West Coast of Oz has felt the pain of property price downturn after the mining industry slowdown over there (less money from Iron Ore to China)… the big one for Oz is the East Coast market where most people live. Particularly the 2 main cities Melbourne and Sydney… No real signs of a downturn yet. Prices propped up by foreign cash, immigration and a govt. very reluctant to prick the bubble
LikeLike
I’m in Australia and we do have a bubble. But what is the normal rate of home builder bankruptcies – this article doesn’t give much context?
LikeLike
I wonder how many people in Australia are now up side down in their homes?
LikeLike
Pop goes the bubble.
LikeLike
I used to be in the home building business. We hardly ever started to build a house that was not ordered with a deposit, especially when business conditions looked problematical. We had a very successful company but I left to pursue other interests. I do not understand these builders that get in trouble with a bunch of unsold houses and lots. Poor businessmen deserve to go out of business.
LikeLike
If one is building a house ***for a buyer*** (not on speculation), the buyer essentially pays for supplies and labor as you go.
When building a house on spec, with the banks money, who cares? Heads the builder wins, tails the bank loses.
These housing busts happen because of easy credit terms.
LikeLike
Spec housing was done in the 50’s and 60’s on the GI bill and floods of vets after WWII. After that, the baby boomers rode the housing shortage that drove home prices higher. The late 80’s till now market is driven by low interest rates. Japan is now entering the phase that the US has not seen yet… total stagnation driven by over supply. By 2030, it is estimated that 37% of Japan’s residential housing will be vacant.
LikeLike
Might be different in Australia where it is the land prices that cause housing to rise. Much of the land released is Government (who got it for free from the aboriginals) or large developers who usually have the in with politicians to purchase large swathes. Some years ago the Courts banned “collusion’ between builders and all associated Industry standard contracts. What happens now is that the developers whether Government owned or private interests can write whatever unfair contracts that they want – so the game is to force builders to take all the development risks as well as the building risks. Builders risk is typically no more than 2-3% and developers risk, weather, Industrial, delays and excess variations (and they can ban variation claims not made within a day or two regardless of whether a variation actually occurs or not) etc is typically 10-20% and now they usually include lower schedule rates for variations in the Contract. Builders, usually cash flow cowboys and those that trust that the owner/developers will give fair treatment get screwed regularly.
It’s tough in Australia unless you are big enough to stand up to bullies.
LikeLike
saruna, here in the States we have no clue what your “variation” thing is.
LikeLike
Owners developers retai the right to change anything they want, including major structural components at any time without regard to building progress.
LikeLike
A builder takes a deposit and then contracts with the purchaser to build the house. The purchaser has a promise with a bank to complete the final payment when the house is complete. This bank promise is a mortgage which was often approved verbally or over the net. Between starting the build and completion for some reason or other the bank may not decide to actually fund the mortgage and leave the purchaser with no funds to complete the sale.
The bank may have second thoughts because government regulation changed or a downturn in the local financial conditions which has left the end building in a situation where the mortgage might be greater than the actual value of the house and land package.
Buyers and builders have both been caught out. Buyers lose their deposit. Builders go broke because they have often spent more on completing the building than the original deposit value – and that building is not yet complete.
Foreign buyers have been caught out because government and bank regulation changed barring foreigners from obtaining mortgage finance. Especially noticeable in the large building apartment market. Foreign buyers have left a deposit with a builder for an off the plan apartment only to finds they can’t find mortgage finance to complete the sale. This has driven down high rise apartment sales in the inner cities.
Banks will now not finance mortgages for inner city apartments off the plan apartments whether local or foreign buyers. There is a glut of apartments in the capital cities of Sydney and Melbourne. Banks are fearful of a substantial price drop (and rightly so).
However there is an acute shortage of suburban family homes. (especially affordable ones)
LikeLike
If you can wait for a buyer before you purchase the land, you have little to lose, but many builders buy land for 100+ homes before selling any units. They can’t wait for buyers before forking out a lot of money.
LikeLike
Where is the rest of the story as to the cause? Who got stiffed when these builders went bust? Was this a case of “builders” knowing easy money was available and they decided to take advantage of the opportunity to make money? I know of builders who took their cut of construction funds to improve their life style first.
LikeLike
Keynesian “easy credit” stimulus strikes again!
LikeLike
Based on its benchmark of linking median house prices to median household incomes, Sydney ranked second globally in a list of least affordable major housing markets, just one score behind Hong Kong.
“Overall, Australia’s 54 housing markets have a severely unaffordable median multiple of 5.5,” the report, released today, found.
“Sydney is again Australia’s least affordable market, with a median multiple of 12.2, the same as last year, and ranks second worst overall, trailing Hong Kong.
“Consistent with the experience in other overly expensive housing markets, Sydney is experiencing substantial domestic out-migration.”
Sydney’s median multiple has jumped 60 percent since the Demographia’s first housing survey in 2004.
According to the UBS Global Real Estate Bubble Index, Sydney has the fourth worst housing bubble risk in the world behind Vancouver, London and Stockholm.
Read more at http://finance.nine.com.au/2017/01/24/11/14/australias-housing-market-severely-unaffordable#9DxsHPxbfV6fJsOp.99
The total value of Australia’s 9.8 million residential dwellings increased $112.1 billion to $6.2 trillion. The mean price of dwellings in Australia is now $631,000.
http://www.abs.gov.au/ausstats/abs@.nsf/mediareleasesbyCatalogue/BE672733C84ECBD0CA257F1B001B1853?OpenDocument
LikeLike
I don’t keep tabs on the Australian economy. What’s the moral of this story?
LikeLike
Bankers will issue almost unlimited credit and retain the right to foreclose at any time if you fall behind and sell off the asset without any obligation to get a fair price. As long as it covers the loan it’s OK with them. Australians thrown out have an obligation in perpetuity to pay back the loan or any balance owing to the Banks. You cannot just walk away as in the USA. Hence house price rises are capped only by the buyers rosy view of the future. Australian private debt is I think the largest in the Worlds developed Countries whilst the Government debt is the least. Money supply flows like water at a increase rate of 5-7% pa. So its one big party folks – until it isn’t.
LikeLike
The West Coast of Oz has felt the pain of large % property price downturn after the mining industry slowdown over there (less money from Iron Ore to China). Cashed up miners laid off and bloated prices coming down… the big one for Oz is the East Coast market where most people live. Particularly the 2 main cities Melbourne and Sydney… No real signs of a downturn yet. Prices propped up by foreign cash, immigration and a govt. very reluctant to prick the bubble
LikeLike
WA is where the problem has hit first. It has more mines and less government. Home builder bust is primarily a China story, as the Chinese are importing fewer raw materials from Australia. At some point, the rest of the world will notice.
LikeLike
O/T (sort of) — In the US, Ford Motor is starting to freak out about used car prices that result from cars coming off lease. A wave of underpriced credit from Bernanke/Yellen made leasing a car attractive in the short term.
https://www.bloomberg.com/news/articles/2017-01-23/ford-seen-as-canary-with-record-leases-spurring-used-car-glut
In the longer term, that temporary steroid injection (keynesian stimulus = steriods) has a heavy price. Off lease vehicles have 3yrs wear and tear on them, but an expected lifespan closer to 12-14 years — they have another decade of economic use if not more.
Why pay $600/mth for a new car that will get trashed in traffic jams and pot-holes of cities that spend 110% of tax money on DPW unions and neglect taxpayers, when a good quality used car will run you $300/mth?
Why lease a new car for $500, when you can lease a used car for $200?
Buy/lease used… and you also pay lower insurance, lower property taxes (in the corrupt states that charge them). Operating costs between 25mpg used car and 30mpg new car are very little –the new cars would have to deliver 70+mpg just to break even on purchase price (never mind the lower insurance / taxes).
Whatever the cost of Mish’s computer drivers is (it might be cheap, but it won’t be zero) — one has to consider the loss of freedom that comes from using cars supplied by Big Brother quasi-government organizations.
Now consider you can keep your freedom of movement and save at least 50% total cost of ownership buying a good quality used car.
If you are still on the fence, consider that Walmart and Amazon have both entered the car parts sales business. Costco has been selling replacement tires for many years. If anything, the total cost of maintaining a used car is set to stay flat or decline — either way it will stay will below CPI.
LikeLike
Bottom line … There are bubbles in just about anything you care to think of and they will all pretty much burst simultaneously.
LikeLike
In the past I would agree, but nowadays new cars have a lot of new safety features that are worth the extra cost IMO. In a few years when the used cars have the features, then i’ll agree.
LikeLike
Seat belts, crumple zones, abs, Front airbags and stability control are the relevant safety features. Pretty much all cars have had those for the past 5 to 10 years. The rest of the fripperies are largely round off, safety wise.
LikeLike
They’re all in WA.
So what?
[YAWN….
LikeLike
The world bankers are really f$#@ked up, they spend money by giving out loans to businesses and people hoping that they can pay back the loan, servicing the debt and make a profit too. It’s a great concept except when the debt service is so high there isn’t a profit any more. It only gets worse from there.
THE END
LikeLike
Its because the super rich are choosing New Zealand which is more remote as a bolt hole when things go wrong for them.
LikeLike
If Steve Keene rates this as news then I suggest that you ask him why he walked to the top of Mount Kosciuszko a few years ago as a result of a loosing bet with Rory Robertson, a Macquarie Bank economist/strategist at the time.
Steve was a minor (Australian) university academic at the time who lost tenure and is now minor (UK) university academic.
Steve is like a stopped clock. One day, he can’t tell you when, he’ll get one of his doom and gloom forecasts right. He failed miserably here in Australia and seems to have left the country for less gullible pastures where people like Mish are less prone to ask him difficult questions accepting what he says at face value.
Left leaning media in Australia seems to be where his views are sought out. For example see:
http://www.smh.com.au/business/markets/steve-keen-rebel-economist-with-a-cause-20170104-gtluez.html
LikeLike