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Real reasons Australian construction is collapsing after Oracle Homes catastrophe

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The domino-like collapse of construction giants and property developers around Australia has largely been blamed on rising costs but that is only half the story.

It has been a devastating period as many families have watched their ‘great Australian dream’ of home ownership turn to dust – and there is set to be more pain on the way.

The story of why this is happening is not a simple one but what is easier to understand is the devastation wrought on people’s lives as company after company collapses. 

While the war in Ukraine and delays in materials caused by Covid-disrupted supply chains have mostly been blamed for the chaos, others suggest the real reason for so many companies now going to the wall is because of their ‘greed’. 

Paul Liston, here pictured with wife Pieta, only learnt that the firm building his house, Oracle Homes, had collapsed when he was idly scrolling though Facebook while in hospital

Specifically, some home builders scaled up their operations in response to the Federal government’s building stimulus scheme, HomeBuilder, introduced in June 2020 during the Covid pandemic. 

The consequence of over-committed construction companies has been carnage in the industry.  

In the case of Oracle Building Corporation Pty Ltd – also known as Oracle Hunter Homes and Oracle Platinum Homes – there were 300 homes left in unfinished limbo in Queensland and NSW when it went into administration on Wednesday.

But that’s been far from the only such horror story this year. 

In Queensland Brisbane-based Besse Construction collapsed owing $1.7million and leaving 30 people out of work. 

Also in that state, Solido Builders Pty Ltd went into liquidation in May and Pivotal Homes Pty Ltd in June. 

Mr Liston has described his unfinished house, located in a southern suburb of Brisbane, as a 'shell'

Mr Liston has described his unfinished house, located in a southern suburb of Brisbane, as a ‘shell’

Victorian builders Wulfrun Constructions Pty Ltd went into liquidation in July.

Another Victorian builder, Waterford Homes, went bust a week earlier, owing at least $600,000 to 60 creditors. 

Construction giant Probuild went under in March owing more than $14million to 784 workers, while Gold Coast-based Condev appointed liquidators weeks later leaving creditors out of pocket $31million. 

Developers have also not been spared.

It was reported in the Herald Sun this week that Victorian developer Caydon, which went into administration in July, owed a staggering $200million with around 130 apartments unsold.

A number of high-profile projects have been scrapped or put on hold around Australia. 

Perth developer Sirona Urban has abandoned a $165million luxury tower, while Melbourne developer Central Equity has stopped a $500million apartment tower on the Gold Coast.

Mr Liston said there was work to be completed both inside and outside the house by the builder, which has been left in limbo

Mr Liston said there was work to be completed both inside and outside the house by the builder, which has been left in limbo

Melbourne-based construction giant Metricon – one of the nation’s largest companies – last month sparked rumours it was in trouble after holding crisis talks with clients and meeting with the Victorian Treasurer.

The owners injected $30million into the embattled company, although bosses have denied it is at risk of entering liquidation.

Sadly the swathe of destruction is unlikely to stop there with one liquidator saying the collapses are having a ripple effect through the industry.

Bill Cotter from Robson Cotter Insolvency Group, the liquidators who have taken control of Oracle’s assets, said the construction sector was at risk of entering a ‘vicious circle’ because of shortages of material. 

Interior shots taken of Mr Liston's house in August reveal there was still a lot of work to be completed

Interior shots taken of Mr Liston’s house in August reveal there was still a lot of work to be completed

‘People won’t pay the company because they are worried about not getting supplies, the company won’t get its money so they can’t pay their supplier,’ Mr Cotter told Daily Mail Australia.

‘Their suppliers don’t get their money so they don’t provide the goods or the subbies don’t do the work. A homeowner won’t pay the next instalment, so it is a vicious circle.’ 

Mr Cotter called this a ‘storm’ of increasing costs, where delays in getting product become ‘self-fulfilling’.

Oracle’s managing director Tom Orel also laid blame on the ‘storm’ of increased costs, according to the liquidators.

Mr Liston, with wife Pieta, said he had intended the house to be his first and last home for his family, which includes three children

Mr Liston, with wife Pieta, said he had intended the house to be his first and last home for his family, which includes three children

‘Mr Orel has highlighted the well known difficult circumstances prevailing in the construction industry, including the recent and rapid rise in construction costs,’ the liquidators said.

‘These factors resulted in cost overruns and delays in project completions, which severely impacted the company’s cash flows and its capacity to continue to operate despite the owners and staff’s best endeavours.’

While supply issues and shortages of staff have driven up prices it leaves out the other side of the economic equation – demand.

Dale Liston learnt of Oracle’s collapse by idly scrolling through Facebook while he was laid up in hospital recovering from an operation for Crohn’s Disease.

For Mr Liston this was catastrophic news. Oracle was building his house on Logan Reserve on the outer southern outskirts of Brisbane.

As it stands Mr Liston has been left with a ‘shell’ of a house that has brick wall and a roof but is largely unfinished inside and out.

The collapse of Oracle left around 300 homes unfinished with the failed company owing at least $14 million

The collapse of Oracle left around 300 homes unfinished with the failed company owing at least $14 million 

While Mr Liston understands that there are factors inflating the costs of construction, he has another explanation for what happened.

‘It’s all based around greed in my opinion,’ he said.

‘He (Mr Orel) bit off more than he can chew.’

Mr Liston said that with buyers spurred on by the Morrison government’s HomeBuilder scheme, Oracle took on more projects than it could reasonably deliver.

‘They’ve just seen all these dollar signs and said “so we’ll take on four times what they have built in the past and hope it all works”,’ Mr Liston said.

Records kept by the state’s industry watchdog, the Queensland Building and Construction Commission industry, back up Mr Liston’s claim.

The liquidators said that Oracle managing director Tom Orel had been offering his full cooperation

The liquidators said that Oracle managing director Tom Orel had been offering his full cooperation

Oracle quadrupled the amount of contracts in the space of a year.

During the financial year 2019-20 it signed on 76 home contracts at a value of $22.4million.

The next financial year it began 316 contracts increasing the value of work overseen to $90million.  

Russ Stephens, co-founder of Association of Professional Builders which advises on housing finance, said this was a staggering increase and a real warning sign.

‘You can’t scale a building company four times in a 12-month period,’ he told the Australian Financial Review.

Mr Stephens said with such a backlog of work the companies were struggling to deliver what they promised and that increased demand, along with supply constraints, sent costs soaring.

‘Because costs kept going up 25 per cent a year … they were losing fortunes on every build,’ he said.

He pointed the finger at stimulus programs such as HomeBuilder, which provided up to $25,000 to buy a new house or to make a significant renovation.

Queensland Master Builders CEO Paul Bidwell said those with unfinished Oracle homes should be able to access the state's warranty scheme to help them complete works

Queensland Master Builders CEO Paul Bidwell said those with unfinished Oracle homes should be able to access the state’s warranty scheme to help them complete works

It was intended to act as a stimulus measure to boost the economy as Covid lockdowns, border closures and other restrictions began to bite. 

‘Whoever was advising the government gave them very poor advice because they didn’t need stimulus,’ Mr Stephens said.

‘All we did was inflate the property market unnecessarily – we poured even more fuel on the fire for construction and did it while allowing builders to commit to fixed-price contracts without allowing escalation clauses.’

Mr Liston has asked what watchdogs such as the QBCC were doing allowing builders to load up with work they could not possibly deliver.

‘They are a contributing factor, I believe,’ he said.

‘They (the QBCC) are the ones that issued them (Oracle) with how much work they are meant to complete,’ he said.

Surfers Paradise builder Pivotal Homes, one of Queensland's biggest home builders, went into liquidation in May. Pictured is a stock image of a man painting the side of a house

Surfers Paradise builder Pivotal Homes, one of Queensland’s biggest home builders, went into liquidation in May. Pictured is a stock image of a man painting the side of a house 

‘[They’ve] allowed these people to nearly quadruple the number of builds these people are allowed to complete in one year.’

Mr Orel and the QBCC have been approached for comment.

Mr Liston also said the QBCC were not being proactive enough in helping those left in the lurch with unfinished homes by Oracle’s collapse.

‘They are being reactive, which I understand, but being reactive to a problem doesn’t solve anything,’ he said.

‘They have got to help us. Sitting there and saying we are going to make a team to do this, it’s all well and good but it’s all words.

‘I’ve had to call my mother in to try to help with this.

‘I’ve got to jump through all these hoops to sort something out that isn’t my fault.’

Master Builders Queensland CEO Paul Bidwell admitted Federal government stimulus scheme Homebuilder, and another $40,000 package offer by the Queensland government to build in the regions, had pumped up demand and caused some construction companies to take on more work than they could manage (pictured, a home being built at Coomera on the Gold Coast)

Master Builders Queensland CEO Paul Bidwell admitted Federal government stimulus scheme Homebuilder, and another $40,000 package offer by the Queensland government to build in the regions, had pumped up demand and caused some construction companies to take on more work than they could manage (pictured, a home being built at Coomera on the Gold Coast)

Master Builders Queensland CEO Paul Bidwell admitted Homebuilder, and another $40,000 package offer by the Queensland government to build in the regions, had pumped up demand.

However, he said it was easy to say the market was overstimulated with the benefit of hindsight. 

‘Looking back a number of builders have said ‘we didn’t need HomeBuilder’ – well that’s OK but in 2019 we did need it,’ he said.

‘And there was a case for that stimulus… in 2019 we saw a bloodbath coming in 2020.

‘These things are blunt instruments – when they turn them on it takes a while for them to gear up.’

Mr Bidwell admitted some builders ‘were more circumspect than others’ in terms of how much work they loaded up. 

‘I am aware of some builders who thought it was a great opportunity to get a quantum leap in the size of their business, a one-off opportunity to go from a small to medium builder to be a big builder’ he said.

He pointed to a builder in Rockhampton who had pursued that opportunity and was ‘probably regretting it’.   

‘At one point he was getting up and losing money everyday,’ Mr Bidwell said.

‘The contracts that he was signing when I last talked to him, he expected to make a profit from but he had a lot of work in progress that was losing money.

‘Things got pretty grim. He’s confident he will come out the other end but in a diminished state and that he will survive.

‘That’s because he was selling whatever assets he has to prop up his business and a lot of people have done that, so they have proved to be quite resilient.

‘That story has played out to a greater or lesser extent across the board.’

Mr Bidwell said beyond Homebuilder, multiple factors including Covid smashing global supply chains, natural disasters, the war in Ukraine, and people in lockdown looking around their homes and deciding they wanted renovations, has caused the current chaos in the industry

Mr Bidwell said beyond Homebuilder, multiple factors including Covid smashing global supply chains, natural disasters, the war in Ukraine, and people in lockdown looking around their homes and deciding they wanted renovations, has caused the current chaos in the industry

Looking ahead Mr Bidwell said there were ‘mixed views’ as to whether the worst was behind the industry.  

Sadly he predicted more failures but said he had actually predicted there would be more before now. 

‘If you tease it out more builders have got to fail but that hasn’t happened,’ he said.

‘And that’s because they are throwing whatever they can in to prop up their business but it’s not sustainable.

‘You’d hope conditions would ease as we go into next year but it’s not going to right itself neatly.’

He argued that multiple factors such as Covid smashing global supply chains, natural disasters, the war in Ukraine, and people in lockdown looking around their homes and deciding they wanted renovations, were unpredictable elements playing into the crisis. 

‘Who would have thought that all those things would coalesce and just sort of add on top of each other? Just sort of pile on?’ he said.

Mr Bidwell said his main advice to builders and their clients was to communicate honestly with each other about cost issues

Mr Bidwell said his main advice to builders and their clients was to communicate honestly with each other about cost issues

His main advice to builders and their clients was to talk to each other.

He said some people were able to cover extra costs when asked by their builders, especially as rising property prices showed them the value of their investment. 

He also said there were ‘some deals being done’.

‘A guy on the Sunshine Coast … the builder said to him the “costs have gone up $30,000, how about I come back next year and build a pool”,’ Mr Bidwell said.

‘The owner said “sure”.’

However, this could only happen where the builder ‘has been communicating with their clients – those who don’t communicate don’t do well’.

‘They’re going to feel the pain a lot sooner and a lot more harshly,’ he said

For Mr Liston, 33, he had hoped the house he was building would be his first and last home for himself, wife Peita and their three children aged four, 10 and 12.

‘I was building something for my family for years and years,’ he said.

Even having already sunk $350,000 into the land and what has been completed of his house, Mr Liston now despairs that he will ever get to move into it.

Mr Bidwell was quick to point to Queensland’s ‘statutory home warranty insurance scheme’ which will pay up to $200,000 to complete works on insured homes.

‘Everyone will get their home finished,’ Mr Bidwell said, although he admitted it might take a long time and might be ‘cold comfort’ for some.

Mr Liston said for him the whole experience of buying a first home had been ‘marred’.

If he got a payout where he broke even he would be happy to walk away ‘and never think about this again’. 

Others are likely to feel the same way as long as the ‘great Australian dream’ continues to turn into a nightmare.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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