This article is from the Australian Property Journal archive
OVER 92% of builders are relying on inaccurate financial reports, reflecting a less than stellar understanding of construction financials across a fragile industry that has witnessed high profile collapses in recent years, and projects stalling due to increasing difficulty in finding reputable and financially stable builders.
According to a new report by Association of Professional Builders (APB), surveying 1,817 builders across Australia, the United States, Canada and New Zealand, despite 68.3% of builders reporting to correctly understanding the difference between markup and margin, there is still a lack of regular monitoring of gross margins on projects.
“Only about half of the builders surveyed confirmed that they produced monthly reports, and worryingly, just over 7% accurately understand the work in progress (WIP) calculation,” said Russ Stephens, co-founder and business strategy specialist at APB.
“Most of the inaccurate financial reports are due to this critical gap in understanding the WIP and this miscalculation could lead to significant financial discrepancies, impacting both tax obligations and overall business health.”
Additionally, just 13.5% of Australian builders were found to accurately understand the WIP calculation.
Australian and New Zealand builders are still falling behind United States and Canada by how many companies are following the recommended and most profitable business model, Design and Build.
“Across ANZ around 44% of builders still quote plans rather than control the design process, with the number even higher for remodelers,” added Stephens.
“The data supported that Design and Build is more profitable, with 65.5% more builders applying markups over 25% compared with builders quoting clients’ plans.”
In 2023, an increasing number of Australian builders were using fixed-price contracts compared to in 2022, with 85.7% of respondents reporting this preference.
Despite the uncertain environment, the report revealed more than 75% of building company owners are expecting business growth over 2024.
With half expecting to achieve 10% or more in net profits from projects delivered over the year.
Furthermore, 12.3% of respondents are now working more than 60 hours weekly and the mental health of 79.2% of respondents either improved or stayed the same over 2023.
The findings are alarming for the fragile building and construction sector which has seen high profile collapses in recent years including St Hilliers, Montego Homes, NPM, as well as Porter Davis, which collapsed with 1,500 homes under construction in Victoria and 200 in Queensland, just to name a few.
Meanwhile apartment development projects continue to face feasibility hurdles which are compounded by difficulties in finding reputable and financially stable builders in the current climate.
