How has COVID-19 affected property development projects?

Discussion in 'Development' started by Anchor, 16th Mar, 2020.

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  1. Anchor

    Anchor Well-Known Member

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    I am in middle of contract negotiation for construction in Geelong.

    Builder says he cannot guarantee the tiles and finishes as imports from China have frozen.

    Says about a dozen builds at lock up are having issues and these are common across market - west melbourne and geelong.

    He was worried that if the status continues for a fortnight more, construction will be seriously impacted.

    I am unsure if he is bluffing. But if he is right I might hold off the build.

    Any similar stories ?
     
    Last edited by a moderator: 16th Mar, 2020
    Anchor, 16th Mar, 2020
    #1
  2. geoffw

    geoffw Moderator Staff Member

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    Daughter is worried that her company's big commercial builds could be threatened by supply problems. Those sort of things could cause major penalties for her company (my thoughts, not what she's told me).
     
    geoffw, 16th Mar, 2020
    #2
  3. wylie

    wylie Moderator Staff Member

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    Our friend has just today put a new build on hold, but still will sell the existing house on the block he's just subdivided.

    Our builder has ordered our tap ware, we have our kitchen and laundry sinks stored at home, and he's ordering kitchen appliances and having them stored in the warehouse. We met a week and a half ago and he confirmed building materials are ok (so far) and are not coming from overseas, but of course, that might still become a problem if businesses slow or close here.
     
    wylie, 16th Mar, 2020
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  4. Anchor

    Anchor Well-Known Member

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    I was planning to do the same with regard to kitchen/bathroom/electrical wares, but like you have said, what happens if the business closes ? Like @geoffw pointed out not only will the completion be impacted, but there are fines and penalties as well. Subbies do not get paid and on it goes till everything stops.
    I might just pour the slab to keep the permit alive.
     
    Anchor, 16th Mar, 2020
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  5. wylie

    wylie Moderator Staff Member

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    I'm as confident as I can be that our builder will keep going. At least we won't be telling him we want to stop because we've run out of money or lost our jobs, so hopefully his workers keep working on our site, assuming they don't fall ill.

    I'm not being flippant at all, but we have the two houses from which the new block was cut from currently rented, so our holding costs are not impacted unless our tenants lose their jobs of course, because we live on the rents.
     
    wylie, 16th Mar, 2020
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  6. Anchor

    Anchor Well-Known Member

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    In addition to materials shortfall
    • Tradies are refusing to work with each other.
    • Surveyors are refusing site visits.
    • VBA is considering issuing guideline to builders on dos and donts.
    Maybe Victoria is extra cautious.
     
    Anchor, 18th Mar, 2020
    #6
  7. Pier1

    Pier1 Well-Known Member

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    If they are a large organisation they would have a robust legal team reviewing contracts before signing and have protections in the contract to prevent penalties:
    Delay Events:
    Authority
    Legislative
    Force Majeure
    Excepted Risks
     
    Pier1, 19th Mar, 2020
    #7
  8. Tufan Chakir

    Tufan Chakir Well-Known Member

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    We are at completion stage - no issues with any of the above
     
    Tufan Chakir, 19th Mar, 2020
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  9. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    In the past two weeks we’ve had to re- choose range hoods and stone bench tops as supply hasn’t arrived. Both were quite easily worked around though.
     
    Westminster, 19th Mar, 2020
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  10. Anchor

    Anchor Well-Known Member

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    Thanks mate... Thats reassuring coming from someone in industry... Might be my builder trying to wriggle out of liquidation damages...
     
    Anchor, 19th Mar, 2020
    #10
  11. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Developers will likely get destroyed. Many builders will lose when work in.progress Ponzi stops. Liquidations will blow out exponentially. Nowhere to hide now. Most consumers won't give a toss
     
    Paul@PAS, 20th Mar, 2020
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  12. Anchor

    Anchor Well-Known Member

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    Thanks Paul...brutally honest.. truly appreciated. Risks are really high even at low interest rate. Will the builder be able to complete, will it sell/rent, lvr will be adversely effected, other sources of income (jobs, rental) are also at risk. I am leaning towards holding off for 4 months at least.
     
    Anchor, 20th Mar, 2020
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  13. wylie

    wylie Moderator Staff Member

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    I asked our builder today if we can buy anything that might be needed. He's right onto this stuff and whilst he's off the starting block early with ordering appliances and having them stored off site, he will also look at buying downlights, door handles and anything else that won't suffer from being moved twice.

    I'm going to have our kitchen island bench lights delivered to me now rather than take a chance they might be given to someone else with a sob story. We don't need them until August, but I'm not going to take a chance.

    Our project has been full on with plenty of people on site and our son is having hard landscaping done and his yard was full of men today too. Fingers crossed.
     
    wylie, 20th Mar, 2020
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  14. # 1

    # 1 Well-Known Member

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    Highgrove have run out of 750 and 900mm vanities in Victoria.
     
    # 1, 20th Mar, 2020
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  15. Anchor

    Anchor Well-Known Member

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    Thanks @wylie, I also spoke to builder and VBA. No supply side concerns from vic government and builder also reported resumption of containers from china.
    My concerns have shifted from completion of build to profitability of project. Is it still worth the risk if market tanks 20 % ?
    Good luck with the build and look forward to project progress.
     
    Anchor, 20th Mar, 2020
    #15
  16. wylie

    wylie Moderator Staff Member

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    We can’t turn back now. We will hold and rent these so profits not as important but obviously if they are worth less than we are paying to build them we will be in trouble if we have to sell for some reason.
     
    wylie, 20th Mar, 2020
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    Anchor likes this.
  17. FireDragon

    FireDragon Well-Known Member

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    I was planning to do a small development of 6-8 units / townhouses but I decided to stop as I need to cash as emergency fund now. I may consider again if the situation gets better in 1-2 months' time.
     
    FireDragon, 21st Mar, 2020
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  18. SteakOnThePlate

    SteakOnThePlate Member

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    We (were) building 12 townhouses in Western Sydney but agreed today with the builder to stop work for at least 3 weeks and then re-assess.
     
    SteakOnThePlate, 23rd Mar, 2020
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  19. MTR

    MTR Well-Known Member

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    I have put my development on hold, too high risk , review in 6 months
     
    MTR, 23rd Mar, 2020
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  20. MTR

    MTR Well-Known Member

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    not not worth the risk

    i have seen developers get caught in a downturn, 20% is huge could turn to losses as selling may take longer, holding costs can hurt
     
    MTR, 23rd Mar, 2020
    #20
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