The slowdown in the Perth property market has claimed two building companies within a week, with industry experts saying intense competition is forcing builders to accept jobs even when they will only break even.
Loxam Developments, which had operated in Perth for more than 20 years, was placed in the hands of Taylor Woodings partner Ian Francis late last week.
Another company, Midland Constructions, was placed in the hands of administrator Chris Williamson of WA Insolvency Solutions yesterday, owing creditors about $3 million.
Both companies had worked on projects funded by the Federal Government’s Building the Education Revolution program for schools, although a wider slowdown in the industrial and commercial sectors of the WA property market is being blamed for the collapses.
The executive director of the Western Australian branch of the Master Builders Association, Michael McLean, says there has been a sharp decline in the number of projects coming to tender.
“You’ve got a lot more builders chasing that work and as a result prices are very competitive and margins are certainly very low, and arguably at break even.”
As well as being forced to bid against more companies, builders are also trying to branch out in other regions of the state or other sectors to chase work.
McLean says his organisation was surprised and disappointed by the collapses of Loxam and MidCon, who were established players in Perth.
“It just sends a few shockwaves through the market,” he says.
“Both have been around for at least 10 years. They are not fly-by-nighters, they are not blow-ins from the east.”
While construction related to mining remains strong in WA, commercial, industrial and residential projects have been hit by a lack of finance and poor consumer confidence.
McLean says there are currently 18,000 homes on the market in WA, compared with the average level of 12,000-13,000.
“People are just not buying at the moment and that’s also reflected in the new homes market.”
McLean says the situation will not improve until lenders are prepared to support the sector.
“I believe that finance is the key. If finance was to flow more readily, work will flow to our industry.”
Ironically, the WA construction sector is also gearing up to confront the challenge of skills shortages as the mining boom revs up again.
“It’s tough,” McLean says.
“We are planning for skills shortages at same time we’ve got a downturn in our industry.”
James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
