Gold Coast-based Condev Construction has a workbook of 80-85 percent multi-story housing developments. CEO Steve Marais says profit margins are currently “down to 1 percent and are still heading south”.
“As profits erode, there will be a bloodbath at some point,” he says.
According to the Marais, Condev has about $ 250 million in annual sales, but in the past two weeks alone it had closed its books for a total of $ 400 million.
“In the booming market, builders go bankrupt if they take on too much work. I call it the seduction of work, and in the end, that’s where the losses will be, ”he says.
“It’s about how you manage the risks associated with an upswing.”
However, he also firmly believes that changes need to be made to curb the enviable and ever-growing list of business failures in the industry.
“At the moment you can still get work in an unregulated manner,” says Marais. “I firmly believe that every time a construction company procures a project worth over $ 10 million, they must come up with financial audits for review.”
Pushing for change
At the forefront of the major industry reform by example is Alison Mirams, the loner at Sydney-based construction company Roberts Co.
“Since I entered the industry 20 years ago, the risk profile has been exponentially worse for contractors for no good reason,” she says.
“Contractors generally work with margins between 2 and 5 percent, but when you fund a $ 100 million project, you have the potential to lose $ 50 million to $ 100 million.
“And unfortunately, they take risks that they can’t manage, and when one or two of them get home it can be pretty ugly.
“But tell me in another industry where we essentially hand you the keys to liquidating the company if everything goes wrong? There is no.
“How did the construction industry get to the point that this is the accepted norm?
“The entire industry is unsustainable for so many reasons that it has to recalibrate.
“It’s not just about companies going under, you are losing people in the industry, you are losing people in suicides, and we don’t have migration right now, so we need people coming into the industry from Australia. But to get it, things have to change. “