Home builders keep buyers in the dark about financials

Builders including Metricon, GJ Gardner, Hickinbotham and Home Group – which make up almost one-third of housing starts of the 20 largest builders – are keeping consumers in the dark about their financial health as the industry grapples with soaring borrowing and material costs.

Parkview Constructions, Coral Homes, Campbell Property Group and Masterton also feature in the Housing Industry Association’s top ranking of home builders, and have also failed to lodge recent financial documents, analysis by The Australian Financial Review shows.

The nine companies account for 11,162, or almost one-third, of the total 35,449 starts of the top 20 builders in last year’s HIA-Colorbond Steel Housing 100 report. But as recent history shows, size isn’t a guarantee of financial viability. The 12th biggest home builder in FY22, Porter Davis Homes, went into liquidation in March last year.

Without clarity about builders’ financial positions, consumers could again unwittingly pay deposits to builders that were about to go under, as happened with businesses such as Privium in Queensland, Porter Davis in Victoria and Millbrook Homes in NSW.

“I’d like to see much greater transparency,” said Russ Stephens, co-founder of The Association of Professional Builders, an industry body.

“It’s making it very difficult for consumers to identify who the good guys are and who are the builders that should be avoided.”

Building-industry insolvencies have soared in the past three years as builders were crunched by rising costs and fixed-price contracts and then as rising borrowing costs crimped new orders.

The latest figures from corporate regulator ASIC show 1782 construction industry insolvencies from the start of the financial year to 25 February, making up almost 28 per cent of the total 6431.

Separate HIA figures this week showed new home sales rose 5.3 per cent in February, their biggest monthly gain since October. Even so, the association says the country is on track to chalk up 95,406 new detached house starts this financial year – the weakest figure in more than a decade.

The HIA, which represents the largest home builders, said its members were subject to oversight and required to hold capital as collateral.

“Builders are already highly regulated both through agencies at state levels such as VMIA or QBCC, which routinely require financial reporting from builders,” HIA chief economist Tim Reardon said.

“In addition, they are also required to gain warranty insurance and insurance providers require periodic reporting of financial positions and they require builders to hold substantial amounts of capital as collateral in the event there is a warranty claim against them.”

But the rules give much leeway. “Large” companies have to lodge reports within four months of the end of a financial year. A company is deemed large if it meets any two of three criteria: consolidated revenue of $50 million or more, assets worth $25 million, or 100 or more employees.

Subcontractors also suffer from a lack of transparency about builders’ finances and had to accept contracts on a take-it-or-leave-it basis, said Louise Stewart, the founder of ProjectPay, a software platform to safeguard payments to tradespeople and suppliers.

The level of financial checks subcontractors can make on builders was not enough to tell them if a builder might go under, Ms Stewart said.

“Builder financial checks represent the financial position at that point in time only,” she said.

“They provide no insight into potential future cashflow shortfalls.”

Some home builders are large companies, with earnings boosted by a development and construction activities in commercial property as well, such as Hutchies parent company Hutchinson Builders and Rich Lister Harry Triguboff’s Meriton.

ASIC did not answer when asked why Metricon Group, the country’s largest detached home builder with 4693 starts in FY23 – which required an emergency cash injection of $30 million to stave off failure in 2022 – did not have to lodge financial statements.

Metricon chief executive Brad Duggan said as a private company it had no obligation to disclose financial information.

“We understand the significance of financial transparency, but we firmly believe that our customers’ trust in Metricon lies in our exceptional service, quality craftsmanship, and timely delivery,” Mr Duggan said.

“The market issues encountered by the industry in recent years, which are no longer continuing, were extraordinary and numerous and are highly unlikely to ever be repeated.”

Sunshine Coast-based GJ Gardner, the tenth-largest builder, which does not disclose financials, said it was a private franchise network that licensed its brand and products to independent franchisees.

“We work with our franchise owners to support good financial and business management,” the company said.

“Anyone considering building a new home should discuss their concerns with any builders they are speaking to before committing.

“As a safeguard, though, domestic building insurance is often taken out when a customer signs a building contract. This is legislated by most governments and enables their home to be continued by another builder in any unlikely event.”

SA-based Hickinbotham, the country’s 11th-largest builder with 1507 starts, has not filed financial statements since 2003. It did not respond to a request for comment.

The regulator did not answer questions why WA-based Home Group only filed FY21 financial documents in May 2023, why Gold Coast-based Coral Homes only filed FY22 financial documents in November 2023, or why Sydney-based Parkview Constructions had not filed documents since lodging FY21 financials in December of that year.

Fifth-ranked builder AHB Group lodged FY23 earnings in January.

“It is a matter for entities to disclose why they are late to file,” an ASIC spokesperson said.

“Whether a company is exempt or not will depend on whether it meets various thresholds. This can change year for year, and it is up to companies to determine if they are required to report. Where we see evidence of repeated reporting failures, we will consider whether further action is required.”

The agency secured more than $700,000 in penalties for reporting failures in the second half of last financial year, the spokesperson said.

Conditions remained tough in the market in the year to June. Of the remaining 11 builders in the HIA’s top 20 that did disclose financials, seven reported a deterioration in pre-tax earnings.

The outlook is mixed. ASX-listed Simonds Group swung back into profit in the six months to December after two years of losses, but housing and development giant Mirvac said last month the housing market was slowing on higher borrowing costs and weaker first-home buyer activity.