Jordan Springs East: Lendlease will assist homeowners
Lendlease has come clean on the full scale of a sinking homes crisis affecting scores of residents at a housing development in Sydney’s west.
Joel Erickson, EXCLUSIVE, Penrith PressSubscriber only|January 18, 2020 7:00am
The number of homes affected by ground settlement issues including sinking and cracking in a new housing estate has jumped to almost 40.
Developer Lendlease has revealed 38 houses near Armoury Rd have been affected by ground settlement issues in a parcel of land at Jordan Springs East. So far, three homes have been demolished or building halted while in the process of being completed.
Residents have reported at least one of the homes having a visible lean before it was knocked down.
The ground settlement – vertical movement of the ground – also caused a sinkhole in Armoury Rd which had to be blocked off for months to repair.
James Diamond and his young family moved into a house on Armoury Rd in December.
“We’ve got little cracks in our home already, which we wouldn’t have expected this quickly,” Mr Diamond said.
“I still remember when someone mentioned the road sinking, so I came out and had a look.
“I noticed the single-storey house they demolished last month was on an angle – you could visibly see it listing.
“There was a bad sinkhole in the road as well. It felt like driving off a cliff – you almost lost your stomach.”
Navy Rd resident Sandeep Kumar, who lives nearby on Navy Rd, said the land in his frontyard had sunk more than a foot since he first moved into his home about 12 months ago.
He said Lendlease had checked for cracks inside his house, which they did not find, but didn’t address the sinking land under his driveway.
“I had to use two tonnes of soil just to fill the sinkage, and it’s not just me,” he said.
“The two houses up from me have similar problems.”
Lendlease’s senior development manager, Kevin Montier, said the company first became aware of ground settlement issues in April, 2018.
“There are 38 homes that have some evidence of issue,” he said. “It was evident that there were properties immediately adjacent to ground settlement at Armoury Rd.
“There were six properties there that we knew to be affected, including the one that was demolished recently and one that was immediately opposite it that was under construction.
“The builder chose to demolish that property while it was under construction, and there was another property adjacent that was also stopped by the builders.”
Mr Montier said the issues were exacerbated when a temporary detention basin rose due to a blockage at the end of 2018.
“Following the heavy rain events at the end of 2018 and early 2019, it brought to our attention there was some further movement due to the fact the basin was allowed to elevate in level,” he said.
“That’s been fixed, and we’re sure it’s not an ongoing issue and won’t repeat, but essentially that meant we took a proactive approach into looking at whether there were more properties affected.”
Works to fix Armoury Rd are now complete, and the road was reopened on January 17.
Mr Montier said Lendlease would offer a 15-year commitment to any homeowners affected by ground settlement including covering the cost of all repairs.
“It’s understandable that people are concerned,” he said.
“The key for us is the customer-first approach. We’re very mindful of how sensitive and personal this is, so we want to make sure we’re there standing by the customer.
“We need to be ensuring we’re covering all their costs as affected by ground settlement, and also making sure their safety is foremost.
“We want to make sure people are comfortable and that Jordan Springs East remains a great place to live.”
HIGH-RISE Apartments continue to mushroom across Sydney
An Ipsos poll of residents for advocacy group the Committee for Sydney found the quality of construction and the structural integrity of towers were by far their biggest safety concerns, followed by fears of becoming trapped in a fire…
Of those surveyed, 36 per cent were concerned and 48 per cent a little concerned about the structural integrity of high-rises. Only 16 per cent did not have any safety concerns…
-almost three in five – notably homeowners, retirees and those 50 and over – felt “a lot more negative” towards developers
–support for greater density in people’s own suburbs has dropped
-a third of those surveyed were supportive, down from 40 per cent in 2018
–Sydney’s population to balloon by 1700 people a week for the next 50 years
–huge volume of apartments to be built very quickly; thus corners cut and build quality compromised
CAAN: As a community let your local MPs know you want a cutback to the prior sustainable immigration of 70,000 people annually, and no Visa Manipulation (migration by the backdoor) with some 400,000 calling Australia home each year!
Eight in 10 Sydneysiders have safety concerns about the structural soundness of high-rise apartment buildings in the wake of the crisis sparked by the cracked Opal and Mascot towers.
An Ipsos poll of residents for advocacy group the Committee for Sydney found the quality of construction and the structural integrity of towers were by far their biggest safety concerns, followed by fears of becoming trapped in a fire. Both easily outranked crime as major concerns.
Retirees, people aged 50 and over, home owners and women are more concerned than the average of those polled about high-rise building safety, while men, high-income earners and those living in towers are less worried.
Of those surveyed, 36 per cent were concerned and 48 per cent a little concerned about the structural integrity of high-rises. Only 16 per cent did not have any safety concerns.
The poll shows the recent structural defects in high-rises have dented people’s perceptions of the developers behind the buildings. Almost three in five – notably homeowners, retirees and those 50 and over – felt “a lot more negative” towards developers due to the problems.
Opal Tower’s owners corporation is claiming that some residents are still out of pocket and is demanding the builder pays up.
Karen Stiles, the executive officer of the non-profit Owners Corporation Network, said there needed to be “root and branch reform” of the building industry to restore public confidence.
“We need rigour in the system to ensure that buildings are delivered fit for purpose,” she said.
Severe cracking in the Opal Tower at Olympic Park in December 2018, and the evacuation from Mascot Towers six months later, have stoked public concerns. Of the four in five people aware of the problems, 91 per cent said they were a little or a lot more concerned.
Committee for Sydney chief executive Gabriel Metcalf said the appointment of a building commissioner in August, and reforms to make it easier for people who bought defective properties to seek damages, were important steps towards restoring confidence. “However, all parties – government, industry, regulators – must work to rebuild public confidence,” he said.
The representative sample of 1000 Sydney residents shows younger people are more likely than retirees and those 50 and over to support greater housing density.
Mr Metcalf said it reflected a global pattern where younger people were choosing the convenience of denser living over suburban areas. This meant demand for “in-city living” would keep increasing.
The highest support for greater urban density is in satellite centres such as Parramatta, Liverpool and Chatswood, and outer suburbs within the Hills District and the Sutherland Shire, while the lowest support is in the CBD and inner city.
CAAN: Parramatta, Liverpool and Chatswood are populated largely by immigrants and Visa holders. Chatswood is a city being built by Chinese Communist Party money (View CAAN Website for audio of David Lee, GeoPolitical Strategist on Chatswood)
Also in discussion with Australian Millennials as they enter their 30s they tend to desire a small cottage with a yard rather than an apartment
With Sydney experiencing a boom in apartment buildings in the past decade, support for greater density in people’s own suburbs has dropped. A third of those surveyed were supportive, down from 40 per cent in 2018.
The survey found people rated the best aspects of high-density living as convenience and cheaper housing, while the worst were the crowded nature of developments and neighbours.
It also revealed confusion about the meaning of the term “medium density”, a term that prompted descriptions ranging from townhouses and apartments to low-rise buildings.
CAAN:Medium-density was originally the description given to apartment blocks of 4, 5 or 6 storeys.
We have seen articles about the Medium-Density Housing Code also including these apartment blocks along with terraces, townhouses, manor houses, villas. triplex and duplex …
THE Victorian Government has coughed up with a $600M package to fix buildings with combustible cladding … but its hands are tied … its means are restricted … how can it surmount an OBSTACLE not of its creation … but one from a greater height … ?
IS this CLADDING CRISIS,a consequence of DEREGULATION … the loss of Australian Standards … cutting ‘Red Tape’ …. and Federal Government Policies … a Building Boom that was unable to keep up with the supply for its Foreign Demand … so industry-wide they fast-tracked by the use of cheap combustible cladding … to make a Motzer … ?
AND in order to maintain their coffers … to ensure the foreign demand … and the ‘hot money’ … the Property Titans annointed the author of their Property Council of Australia (the PCA) Policy to the highest office in the Land …
*AND that’s perhaps WHY the deviloper crims have got off Scott-free from the cost of removal and replacement of the dangerous dodgy combustible material thousands of ’em across Australia … as they continue to Phoenix their companies too! …
Combustible cladding removal costs leave Melbourne apartment owners in a bind
Anais Wood saved up for years to buy her dream home, but it quickly became one of the worst decisions of her life.
Ms Wood will have to foot a huge bill to remove combustible cladding
She, like many other property owners, faces prosecution if she does not comply
An agency set up to support building owners says there is too little money to help them all
The 26-year-old moved into her apartment in Melbourne’s south-east last year, but two months later she was told the building was covered in combustible cladding, which could cost hundreds of thousands of dollars to remove.
Months after the Victorian Government set up a new body to foot the bill for cladding rectification works, Ms Wood will have to get rid of the dangerous material at her own expense.
She received a letter from her local council that stated she had five months to remove the cladding it described as a “danger to life”, or she faced criminal conviction.
But the organisation set up to support building owners in her position, Cladding Safety Victoria (CSV), said Ms Wood’s situation was not dangerous enough to qualify her for compensation.
“I didn’t even know what cladding actually meant when I received the notice,” Ms Wood said.
“It took me years to find what I was looking for, I finally found my perfect home but basically from day dot it’s been a nightmare.”
Ms Wood’s mother, Michelle, has been trying to help her daughter deal with the stress and confusion.
“It was pretty upsetting for her having bought her first apartment and to be faced with something like this — we had absolutely no idea of the costs or to what extent the building was covered in cladding,” she said.
“We are going to have to come up with the funds to have this cladding removed because we’ve been told we’ll get absolutely no funding at all, because there just isn’t enough money to cover everybody.”
Michelle Wood said they had received one quote for $40,000 for the removal, and another quote for the same project for more than $200,000.
“It’s very stressful because we don’t know if we are going to be ripped off,” she said.
“Morally we don’t believe we should have to fund it, it’s not the owner’sproblem that the cladding was put on there — you rely on the correct authorities to make the right decisions in relation to the building and building materials.”
A new building levy, which could see permit costs for apartment developments in Melbourne rise significantly, will come into force on January 1 to cover the costs of the cladding removal program.
But many homeowners still cannot get compensation, with councils threatening court action if they do not fork out for the repairs.
*CAAN: ALERT for Boomers/Retirees looking to ‘DOWNSIZE’ …not only are you giving devilopers more opportunities to ‘house bank’ our streets to build for money launderers … but you may end up far worse off … Read more! *
*Graham Arvidson sold his family home of 37 years to retire to a townhouse near the beach at Carrum, in Melbourne’s south-east.
A few months later, he learnt it was covered with combustible cladding and was assessed to be a high-risk building.
It is not known how many buildings with the cladding will not qualify for compensation funding, but a statewide audit has identified more than850 properties deemed to be between extreme and moderate risk.
The Opposition’s planning spokesman Tim Smith said it was unfair homeowners had been left in limbo over Christmas.
“These people, through no fault of their own, are caught up in this terrible situation and now they’re being told that they can’t be helped by the Government,” Mr Smith said.
“Despite the fact the councils are telling them the building they live in is a danger to life, CSV and the Andrews Government say it’s not dangerous enough and you have to pay.
“I just don’t think that’s fair.”
Mr Smith said $600 million was not enough funding and the real cost of removing cladding from buildings in Victoria was more like $2.2 billion.
“The Government said they’d help everyone that was caught up in the cladding crisis,” he said.
“Instead they’ve said ‘you’re on your own’.”
Housing and Planning Minister Richard Wynne referred the ABC’s enquiries back to CSV.
Melbourne builder Verve Construction has joined apartment developers Ralan and Steller and and national building supplier SWC as a big property development casualty of 2019.
The Abbotsford-based company, owned by Robert Magdziarz, kept a relatively low profile but was undertaking several big apartment projects across Melbourne this year.
Adam Nikitins and Stewart McCallum of Ernst & Young were appointed joint liquidators at the end of October after Verve ran into financial and legal difficulties.
*It will get a lot worse before it gets better. The biggest single downside risk to the Australian economy is the downturn in construction activity.
Gross fixed capital formation (GFCF), basically net investment, was already falling in the year to September 2019,down 3.6% in total driven by a 4.7% decline across the private sector:
The main driver of the fall in private GFCF was dwelling construction, which fell by 10.6% year-over-year in the September quarter:
The outlook for residential construction remains dire in 2020, given both dwelling approvals and commencements have collapsed and completions have only just peaked:
Annual dwelling commencements are running 15% below their 2018 peak, whereas approvals are down 24%. Both guarantee that dwelling construction will fall heavily into 2021.
Adding to the pain, infrastructure investment is also projected to decline in 2020 as the National Broadband Network (NBN) rolls-off:
Indeed, the latest Performance of Construction Index from the Australian Industry Group was a wipe-out, with all areas in deep contraction (i.e. below 50 points):
Yet to date, the construction bust (residential, in particular) has not translated into job losses.
In the year to August 2018, the number of Australians employed directly in construction increased to a near record high 1.2 million, accounting for 9.1% of total Australian jobs:
*However, as shown in the next chart from UBS, construction job ads have declined by around 30% – commensurate with the decline in dwelling approvals – resulting in a “material drop in construction employment ahead”:
Australia’s authorities are hoping that the strong bounce in dwelling values will lift dwelling construction in due course. However we areskeptical that it can do so quickly or with any great substance.
The reason is the extraordinary “defect crisis” that has swept east coast apartment markets.
The use of flammable cladding, the rise of dodgy Chinese builders and “phoenixing” construction firms, and the shear unbridled pace of the last boom, has left a legacy of cracked foundations, towering infernos and shoddy workmanship across the sector.
*Estimates of the remediation bill for these defects run as high as $1 trillion.
This will leave a legacy of stalled buyer interest and suppressed lending into the apartment sector, and it was this segment that boomed so powerfully during the last cycle.
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
Photo: Daily Telegraph: Carlingford near the railway station
And for some, fear a building was about to collapse.
But there is another reason it sticks in his memory; his dog Rambo does not like alarms.
“The noise is too much for his little ears,” he said.
Mr Jones owns an apartment on level 29 of Sydney’s Opal Tower — now arguably Australia’s most infamous residential building.
On Tuesday, Christmas Eve, when most of Australia will be wrapping presents and recalling past Christmases, Opal Tower residents will be remembering something else: the day they were evacuated from their homes.
Many owners spent months in temporary accommodation, an ordeal described as a “nightmare” and a “disaster”, as they waited for repairs to be finished.
Mr Brown said the company was doing cosmetic repairs such as painting and landscaping, which it expected to finish by April 2020.
“Our structural work is complete, and we’ve started dropping the scaffolding now,” he said.
Back on level 29, Mr Jones said he was trying to be optimistic about the value of his apartment, which he bought for $980,000, and the building which he said was probably now “the safest in the world”.
“No-one would probably want to buy here at the moment,” he said.
“But real estate is a long-term game.
“And I think over time people will regain confidence in what this building has undergone.
The construction industry has endemic problems with phoenixing, critics say.CREDIT:JOE ARMAO
CAAN selected this comment …
‘When you look at the results of phoenixing in the construction industry, the Ensuring Integrity legislation must be the most hypocritical act of a government renowned for its Christian Values and its selfless adherence to High Moral Standards.
I’ve been phoenixed twice – it’s not illegal, just plain immoral and shattering to it’s victims. Personally, I favour exta-judicial justice, but I’m told that is illegal. There’s no justice in this system.’
At CAAN we share with you a lot of facts … reference to these ‘facts’ often appear in the intro to articles like this! For example, Scomo wrote the policy for the developer lobby, the Property Council of Australia before he entered politics … is this why he was annointed? And is this why this lobby group hold so much sway with our governments? Cough … cough …
WHY not start by spreading the word? …
We have to counter this corruption … Albo recently challenged the Coalition talk of the thuggery of the Union Movement by saying that most UNION MEMBERS are NURSES!
Small business flattened by ‘dodgy’ builders in phoenixing epidemic
NSW construction companies collapse at levels not seen elsewhere in the country with more criminal misconduct allegations made against them than in other states.
*Administrators found evidence of wrongdoing in 561 construction industry businesses that failed in NSW in 2017-18, reflecting a pattern of “phoenixing” that is difficult to prosecute because it is not illegal in all cases.
Illegal “phoenixing” occurs when company directors move assets from one company to another to avoid debts or liability for issues like building defects leaving creditors with the bill when the company is liquidated.
It costs the economy up to $5 billion each year.
Australian Restructuring Insolvency and Turnaround Association CEO John Winter said phoenixing has been “endemic” for decades.
“It’s become a learned behaviour in the property market because it’s gone on for so long (and) because nobody has really been prosecuted to any great extent,” Mr Winter said.
On Monday, the Heralddetailed the broken business model in the NSW building industry that experts say has reached epidemic proportions: developers and builders creating $2 companies to carry out apartment projects,taking the profits and then shutting them down before they can be pursued in court over any defects bill.
The Berejikilian government and newly anointed Building Commissioner David Chandler have both failed to publicly lay out plans to address the problem and did not respond to questions from the Herald, sparking accusations their response to the building defects crisis has been “defective”.
Sydney-based developers, The Merhis Group, with projects across western Sydney worth up to $145 million, were accused of phoenixing recently.
Theallegation was made by liquidators from Helm Advisory in documents filed with ASIC in April. The Merhis Group denied the allegations to the Herald. It settled claims from creditors in late September, agreeing to pay about $20 million to the tax office and other creditors involved in the collapse of more than half a dozen of their subsidiaries.
When a company is phoenixed there are few or no assets left to fund legal action against the directors.
If a company has no assets and liquidators want to take legal action to pursue directors for illegal phoenixing or other misdeeds they can apply to use ASIC’s Assetless Administration Fund. Most applications are rejected, with fewer than one in three of the 1524 requests made in 2016/17 and 2017/18 approved.
ASIC, generally, has less than 20 successful prosecutions against directors in a year, despite more than 7000 reports of misconduct, Mr Winter said.
Introducing new laws targeting illegal phoenixing last month Assistant Treasurer Michael Sukkar pledged to add $8.7 million to the fund over four years.
*Phoenixing is also fanned by “dodgy” pre-insolvency business advisorswho tell directors how to phoenix by stripping assets, and destroying their books, the ARITA boss Mr Winter said.
Liquidator Anthony Elkerton of DW Advisory said many construction insolvencies are small business victims of a cascading industry which employs down a line of sub-contractors.
“If there’s any delay in payment or non-payment further up the chain, it exacerbates as it comes down and those people (smaller trade businesses such as plumbers) are forced into liquidation,” Mr Elkerton said.
“The next size up the chain is the employer of 10-30 employees and that’s probably where you see most classic phoenixing,” he said. “They’re still at the whim of those above them in the chain but they have a substantial number of employees and non-payment of taxes and superannuation is generally the first thing that happens when cash flow gets tight.”
These businesses are “prey” for “shonky” pre-insolvency business advisors, he said.
The next level up is the directors who go into a business expecting to phoenix and use it as an advantage to offer lower quotes, via net tax tendering, based on assuming no tax will be paid.
“Most of the parties that operate in the phoenix world have their personal affairs set up so they have no assets, they might be in a spouse’s name or in a family trust,” Mr Elkerton said. “Soeven if you know you would be successful in pursuing the action, there is no benefit to creditors in doing so.”
ASIC’senforcementinvestigations increased by 20 per cent last year, and since 2014 a Phoenix Taskforce has clawed back more than $500 million from phoenix operators.
Peter Kalos, of Kurnell, was disqualified from managing companies by ASIC for the maximum period of five years, in part due to phoenix activity at nine failed businesses, some in the property industry. Despite going under with debts of almost $8 million, Mr Kalos had the ban halved on appeal.
In January, a property developer of five beachfront apartments in Manly, Benjamin Ensor, was sentenced to six years jail and ordered to pay more than $1.8 million after being found guilty of illegal phoenix activity and GST fraud.
Less than 11 cents in the dollar was recouped from insolvent companies in 97 per cent of cases over the past 3 years.
A “defective” business model that experts say has reached epidemic levels in the NSW building industry is leaving investors financially broken.
Aidan Ellis, 75, was stunned when the developer and builder of his apartment block could “walk away scot-free” after his companies went into liquidation midway through a battle over defects estimated to be worth in excess of $2 million.
The “six-year nightmare” has forced Mr Ellis into temporary accommodation while his apartment is a demolition site.
The business model, known as phoenixing, refers to behaviour that becomes illegal when it is proven a company was deliberately wound up to avoid paying debts, such as tax and GST.
“It’s disgraceful,” Mr Ellis said. “Thousands of ordinary Australians are losing their life savings.”
The Herald has spoken to several apartment owners like Mr Ellis who are left with no one to sue for defects they did not cause. Most of them will not speak publicly for fear of harming their resale values.
But the effects are real and devastating: they speak of broken marriages, mental breakdowns and unbearable financial strain.
At the heart of their misery lies a broken business model that experts say has reached epidemic proportions in the NSW building industry:developers and builders creating $2 companies to carry out apartment projects, taking the profits and then shutting them down before they can be pursued in court over any defects bill.
The Berejikilian government and newly anointed Building Commissioner David Chandler have both failed to publicly lay out plans to address the problem and did not respond to questions from the Herald, sparking accusations their response to the building defects crisis has been “defective”.
It comes after industry experts, lawyers, academics, unions and the peak body representing apartment owners all demanded action at a recent parliamentary inquiry, where the business model was referred to as “phoenixing”.
The inquiry was launched following the evacuations of Sydney’s Opal Tower, Mascot and Zetland apartment buildings, which rocked public confidence in multi-storey units.
David Christie, an engineer with more than 50 years’ experience, said: “The industry is full of $2 companies, doing quick and dirty developments, with little oversight or control.
“They open a specific company for each development for the very reason that if something goes wrong … they can just pull the pin and walk away. At the end of the day, it is the poor consumer that wears the fullbrunt of it all.”
Stanton Legal told the inquiry that phoenixing was the “most significant factor” in the cascading number of defective buildings. Associate Professor Hazel Easthope from the University of NSW said it left fixing defects contingent on the “goodwill of those developers and builders”.
Former treasury secretary Michael Lambert, who led a landmark review into NSW building regulations in 2015, said it was “very disappointing” that phoenixing hadn’t been addressed.
“It’s quite clear that the building regulation is defective,” he said.
A Herald analysis of recent Supreme Court defects cases found five where a developer had been liquidated, two where the builder had been wound up and three where both the developer and builder no longer existed.
*The Australian Securities and Investments Commission prosecutes illegal phoenixing and has been open about the difficulty it has faced in proving intent, especially when the phoenixing is assisted by unscrupulous liquidators and business advisers.
*To further complicate the matter, the federal government has jurisdiction over corporate laws including phoenixing, while the state has jurisdiction over the building industry.
*The Morrison government introduced new laws this month to curb the practice by introducing director identification numbers (DIN). It is also creating new penalties for illegal phoenixing.
*However, Australian Small Business ombudsman Kate Carnell said the DIN “doesn’t solve the problem” of phoenixing and could be more than a year away from implementation.
There are concerns the laws will do little to dismantle the type of phoenixing that is commonplace within the industry, and that while not necessarily illegal it is wreaking havoc for buyers left with the bill.
Queensland, ACT and Victoria have intervened to protect consumers by introducing their own legislation aimed at phoenixing.
The Queensland Building and Construction Commission runs a licensing scheme that can exclude builders from the industry for life once they have been involved in multiple insolvencies.
“An excluded person cannot (overtly, or covertly) own or otherwise ‘be calling the shots’ of a licensed building company,” a spokesperson said.
Australian Restructuring Insolvency and Turnaround Association chief executive John Winter said licensing was the “only way” to hold developers to account for a history of insolvency and poor building quality.
In its interim report last month, the Greens and Labor-led parliamentary inquiry found the NSW building industry was trapped in a “vicious cycle” of phoenixing.
It recommended there be an increase to the 2 per cent bond paid by the developer at the outset of a project to cover any defect repairs needed down the track, subject to economic modelling on the effect of the change.
In a dissenting statement on behalf of the government, Trevor Khan said such a change was “likely to have a major impact on the cost of new buildings and negatively affect housing affordability”.
The Berejiklian government reforms are focused on the registration of practitioners who carry out building work, including principal contractors, designers, architects and engineers.
When the senior bureaucrats developing the reforms were quizzed in Parliament about Queensland’s approach, they said they had not dealt with phoenixing “within the ambit of this bill” but “could look into that”.
They pointed out that “there is a lot of work being done at both commonwealth and state levels on the issue of phoenixing more generally”.
-Now if the Regulation imposed a $10,000 fine for minor breaches and gaol time for major breaches, we will start seeing some action.
Concerning new developments, developers should be required to have 5% of every purchase placed as a retention bond only released a minimum of two years after the sale and 12 months after the last defect has been remedied. That way, even if they strip assets and wind up the company, 5% of every unit sale has been quarantined.
-My understanding is the proposed “Director Identification Numbers” Bill lapsed when the elections were called and hasn’t been re-introduced into the Parliament since. Priorities.
Consumers’ hopes, dreams and hard-earned cash aren’t the only things turned to ash by phoenixing, a practice which is all too common in the construction industry and sees companies go into liquidation to avoid paying bills only to re-emerge weeks or even days later under a new name and ABN.
Subcontractors are often the main victims of these unscrupulous operators; left millions of dollars out of pocket in unpaid fees with no avenue for redress.
To understand how this practice works, you need to understand how contacts work in the construction industry.
Typically, on a project there is a lead contractor or developer that tenders for all the work involved in a development. Once successful, this party then divides up the work required on the project and subcontracts it out to specialist firms – an electrical contractor gets the electrical work, the glaziers get glass, and so on.
However, the lead contractor or developer usually receives and holds the cash paid by the client of the project, which could be individuals, private investors or even government.
It is in the lead contractors’ interests to hold this cash as long as possible to manage cash-flow. The Australian Building and Construction Commission received 614 reports, enquiries and complaints on payment matters in 2018-19. This is up more than four-fold on the 145 queries received a year earlier.
Less reputable operators can go a step further than delaying payments. If they see problems ahead, they can shift the money into other vehicles and liquidate the business that is responsible for the project and holds the agreements with subcontracting firms.
This leaves the subcontractor with no hope of receiving the money they are owed, while still needing to pay their employees and suppliers.
To rub salt in the wound, the directors of the liquidated firm then reappear at a new company.
A report prepared by PwC for the ATO, Fair Work Ombudsman and ASIC estimated the practice cost the Australian economy between $2.9 billion and $5.1 billion in 2016-17. The bulk of the cost (up to $3 billion) was borne by businesses, such as subcontractors.
That this can still go on shows we have a long way to go before we will be close to restoring trust in the construction sector.
There should be tougher penalties for the directors of phoenixing companies. The federal government’s proposed identification number of directors is a good start. We want to see it picked up by next year.
We have also seen significant work by government on security of payments to ensure subcontractors get paid in full and on-time, but the power imbalance in the industry means more radical change may be needed.
My association is advocating that state and territory legislatures implement a threshold for construction industry project works to a value of $1 million, not just for those valued over $20 million.
There is an opportunity in 2020 to address these problems once and for all, and in doing so properly protect consumers and small and medium businesses – and begin rebuilding trust. It should be grasped.
Suresh Manickam is the chief executive officer of the National Electrical and Communications Association.
Earlier this year he had to shut down his work for three weeks because he couldn’t get professional indemnity insurance without any exemptions — something insurers have become reluctant to offer surveyors.
For Mr Watt’s clients, it caused all sorts of delays building their homes.
“They couldn’t go past a mandatory inspection stage, so once they got to the end of the frame they couldn’t go any further,” he said.
In August a ministerial order was issued in Victoria, allowing surveyors to work with insurance even if it contained exclusions for non-compliant materials.
Similar moves were made in other states.
While that allowed surveyors like Mr Watt to return to work, it did not solve all of the profession’s problems.
Federal Minister for Industry Karen Andrews will meet with her state counterparts on today to discuss surveyor insurance.
“Queensland and New South Wales have been leading work on possible solutions and this will be considered as a priority at Friday’s Building Ministers Forum,” Ms Andrews said.
“Insurers also need to step up and meet their existing obligations and lift their exclusions on professional indemnity insurance to ensure certifiers who are doing the right thing can continue to operate.”
Both the insurers and the Victorian Government are calling for a national approach to resolving the insurance crisis.
Victorian Housing Minister Richard Wynne said the “only way to get real change is to deal with it a national level”.
Insurance Council of Australia spokesman Campbell Fuller said there was still a crisis of confidence in the building and construction sector.
“It would be irresponsible and impractical for insurers to reassess their risk appetites and their products, including cladding-related exclusions on professional indemnity cover, based on promises and not nationally consistent action,” he said.
SOME DEVELOPERS are already delivering well-designed apartment buildings that are durable and fit for purpose. They are to be commended. The problem for buyers is identifying these amid a sea of dross!
The NSW GOVERNMENT would do well to heed the advice from Geoff Hanmer to Fix Australia’s Building Codes!
A prestige apartment building in Sydneybuilt by a well-known developer is undergoing a second replacement of a terrace waterproof membrane five years after replacement of the first one, which had leaked from completion.
*The second membrane almost certainly complied with the National Construction Code (NCC) and was certified as compliant; the first one might also have complied. Yet, for 15 years, owners and tenants living under the terraces have put up with mouldy walls, carpets and ceilings because the code does not adequately control waterproofing materials and methods.
A key assumption made by governments and regulators has been that confidence will return to the market if apartments are built to meet National Construction Code requirements.
In2017, the Building Ministers’ Forum, the group of federal, state and territory ministers responsible for building regulation in Australia, commissioned a report from Peter Shergold and Bronwyn Weir.
Their report said there was “… diminishing public confidence that the building and construction industry can deliver compliant, safe buildings which will perform to the expected standards over the long term”.
*The National Construction Code originated as a minimum standard to deliver structural integrity and fire safety. It was never intended to provide effective control over all the aspects of building work that make houses or apartments liveable and durable.
This might come as a surprise to many people, including those in government, but it is inherent to the “minimum standard” approach that underpins the structure and objectives of the code.
The objectives on page 9 of volume 1 of the code, which covers apartments, are instructive:
1) ensure requirements have a rigorously tested rationale; and
2) effectively and proportionally address applicable issues; and
3) create benefits to society that outweigh costs; and
4) consider non-regulatory alternatives; and
5) consider the competitive effects of regulation; and
6) not be unnecessarily restrictive.
In attempting to consider “competitive effects”, avoid being “restrictive” and by encouraging “non-regulatory alternatives”, including self-certification and self-regulation, the code has opened the door to an “anything goes” mentality on many fronts.
*Waterproofing requirements for houses and apartments under section F of the code are clearly ineffective, for a start.
The relevant Australian Standards, AS 4654.1 and AS 4654.2, were written with a lot of input from the building materials supply industry.
*The standards permit the use of unsuitable waterproofing membranes in many situations, particularly where ceramic tiles are directly bonded to an inappropriate liquid-applied membrane. As the example at the start of this article shows, this solution rarely lasts longer than four or five years and considerably less in some cases.
Rectification is expensive and inconvenient. It involves hacking up and replacing all the tiles.
*In addition, every apartment building built without a step in the slabat the junction between walls and floors will probably develop leaks within a similar timeframe.
These practices are driven by the desire to save a few dollars in construction cost, not by a commitment to deliver a required standard of durability. Durability is not part of the code objectives.
We could improve the code in a number of simple ways:
Class 1 (houses) and class 2 (apartments) buildings should both be in volume 2, which would be dedicated to housing intended for sale. Houses and apartments should be required to be “fit for purpose” with a clearly stated objective to provide protection to the buyer. These should include a mandatory minimum statutory warranty of seven to ten years, backed by government.
The required durability of waterproofing membranes and details for all housing, and class 2 apartments in particular, must be clearly stated. Waterproofing should be required to last at least 25 years without significant maintenance, and perhaps 40 years for buildings where access to the waterproofing element requires demolition or is fundamentally difficult. Details that are not durable, including slabs without steps at wall junctions, or terrace and balcony tiles directly bonded to liquid-applied waterproof membranes, should be banned.
The structure of an apartment should be required to last with no substantial maintenance for at least 50 to 60 years. The minimum expectation for durability for any envelope component and associated finishes on buildings over three storeys should be 25 years, and perhaps 40 years for taller buildings.
The “performance requirements” of section F of the code, “Health and Amenity”, should be expanded to ensure apartments are comfortable, economical to maintain and sustainable.
*Some developers are already delivering well-designed apartment buildings that are durable and fit for purpose. They are to be commended. The problem for buyers is identifying these amid a sea of dross.
For new houses and apartments,we need to ensure the National Construction Code matches community expectations on fitness for purpose and durability. This requires a return to more active and interventionist regulatory framework, including putting independent “eyes on the site” to inspect work during construction.