Building pressure as more developers cut and run

A story in the Sydney Morning Herald last week should have sent an unseasonal chill through the corridors of NSW Fair Trading and the whole of the state Government.

In fact, Canberra itself could and should be feeling the draught with the news that one of our most prominent property developers has gone into receivership, while another major player has also pulled the plug in the midst of a court battle over millions of dollars worth of alleged defects.

According to this story in the SMH, hundreds of Sydney apartment owners in seven blocks across the city are allegedly owed  $30 million for repairs following the collapse of a company linked to the builder of the Opal Tower.

The most substantial claim against it is for $20 million from the owners of the Otto apartments at Rosebery.

And, the SMH story says, another high-profile construction group, Ganellen, placed one of its companies into administration last week, midway through a court battle over defects.

The SMH says these are examples of   an “epidemic” in NSW of building companies being wound up during defects battles, leaving apartment owners with nobody to sue.

The story goes on to say that Icon Construction Australia (NSW) Pty Ltd, is a “related entity” to Icon Co (NSW) Pty Ltd, the company that built Sydney’s cracked Opal Tower and which was placed into voluntary administration in November.

If these collapses of developers in the face of claims for millions of dollars worth of defects don’t worry the governments at state and federal level, they should.

The reason the government has been pumping first-home and new-build grants into the housing market is for the simple reason that building homes has a knock-on effect on the economy like no other, creating jobs, stimulating growth, improving productivity (as people work to pay their mortgages) and raising taxes.

But that requires people to jump into the property market, usually by buying off the plan.  Developers need purchasers to do that so they can raise the loans to build the apartment blocks in the first place. 

But, really, what informed person would gamble between $500k and a million dollars on a property that could start crumbling around their ears the moment they step through the door. 

And it’s all very well to say the developer has to fix defects notified within the first six years.  Some will, many won’t, rolling the dice that the law will protct them before it takes care of home owners.

And if there’s a chance they might cut and run as soon as their liabilities exceed the risible defects bond they have to deposit (in NSW) at the start of the process, who is going to trust them?

Even worse, if it’s more economical to invest in high-powered lawyers to fight tooth and nail to avoid fixing the problems they created, is the new-build grant a good enough cushion to soften the blow of a defective building and the financial and emotional turmoil of getting it fixed.

To be fair, there are some very good and reliable developers out there, who take pride in the quality of their product and their reputations. 

But in the SMH’s report last year on phoenixing – a dubious practice where  developers and builders create $2 companies to carry out apartment projects, take the profits and then shut them down before they can be pursued over any defects, only to start up again under a different name – they found 10  Supreme Court defects cases where the developer or builder or both had gone into liquidation

NSW Building Commissioner David Chandler has an ambitious plan to reward good builders and developers and punish the bad ones, to the point where the big insurance companies will cover the good operators and the dodgy ones will be left to convince potential purchasers that there’s a good reason why their work isn’t insured.

But that will take time and the state and federal governments need developers to develop and builders to build right now

Will corners be cut, will approvals be pushed through, will we see the end of oversight and the return of the government blind eye?

And will we see even more of the perpetual buck-passing between Canberra, which administers company law, and Macquarie St, which runs planning and building legislation?

There is nothing in the recent history of this state or country, nor the behaviour of our elected politicians nor the shadier characters still operating in the development industry, to suggest anything to the contrary.