14 September 2014

Breaking Story: Townsville Property Investors Left out of Pocket;Building Contractor License Terminated

The newly reformed Queensland's Building Construction Commission (QBCC) has terminated the licence of an alleged unethical building contractor operating in the Townsville new construction industry, leaving many angry investors in the dark and out of pocket thousands of dollars.

Reports of the contract builder's termination comes as the Townsville property investment and rental market feels the strain of increasing vacancy rates, reported by Herron Todd White in September 2014 to be trending at 6.08%.

Mostly South-Eastern and Western Australian investors who signed up to off-the-plan house and land contracts are impacted by the termination of the builders' license. Most of the 20-30 new investment properties are now abandoned, partly completed like ruined buildings and ghost houses nearing final completion waiting for QBCC assistance, which cannot come soon enough for mum and dad investors across Australia.

Approximately 500 new developer lots were available in April 2014 for purchase in the Townsville market. The scope of impact is relatively minor at this stage in the context of the entire new construction market in Townsville. But this offers no consolation to the many investors committed to the Townsville and Darwin property markets through what is known as the "Base Camp" investment system.


Local estate agents are reporting that unpaid contractors are returning to the properties and removing installed equipment because they have not been paid by the disgraced contract builder. One agent who wished not to be identified said; "we went to the property to check progress of works on behalf of our client and take photos, then found at the next visit that the irrigation system had been stolen or ripped out of the ground".

Ex employees of the contract builder have also confirmed that sub contractors are recovering their equipment from the abandoned buildings in lieu of being paid for their services. Suppliers have cancelled scheduled services on the news of the builder's license termination, and in some cases honestly refunded up front payments to the client on the "smell of a rat".

Townsville Real Estate Principal and Property Management Expert, Aaron McLeod said; Investors must be very careful dealing with venture building contractors especially those engaged by property investment spruikers to build and commission new investment properties. Investors are advised to engage the services of a licensed real estate professional in the location of the project, and work with local reputable builders.", Mr McLeod commented.

Back in 2013, Townsville contractors remember all too well when "Walton Construction (Australia) Pty Ltd and Walton Construction (Queensland) Pty Ltd were placed under administration on October 4 this  year owing millions of dollars to sub contractors across Queensland, NSW and Victoria." (Sunshine Coast Daily, Oct 2013)

Distressed investors are anxiously seeking help from the newly formed QBCC, insurance providers, lenders and the Southern investment spruikers who brokered the investment opportunities in the first place through participating finance brokers, often luring investors through effective telemarketing or property investment seminars in the capital cities.

At least one innocent investor has reported to the Townsville Real Estate Blog that they paid the final payment to the builder, then learned through the developer's covenant inspector that a substantial list of defects needed fixing. Defects such as fences, gates, roller doors, doors, security screens, locks and plumbing services, irrigation, etc. we're found not working at the property.

A practising Townsvilke building certifier reported; "These are components not typically included in the final inspection covered by the statutory Form 21 process. These defects seemed to have slipped through the gap in this certification process because plumbing and drainage is handled by local council inspectors, not the privately contracted and licensed building certifiers."

Perhaps most culpable could be the inspector, believed to be the licensed certifyer, that verified to the Client's lender via the investment spruiker that the building was completed and ready for handover. In addition, the plumbing and drainage final either was not done or was not delivered by the investment spruiker to the Clients lender before the final loan payments were disbursed to the failed builder.


Meanwhile, the builder and onsite supervisor reportedly coerced the investor into paying the final payment before keys could be provided to an independent agent, knowing forewell the property was not satisfactory for handover.

Because the investor has drawn down 100% of the borrowings after the Form 21 final certification form was received by the lender, the undisclosed defects still prevented the building from being occupied and rented so interest payments on the client's borrowings for the project could be serviced from cash flows.

Sources of the Townsville Real Estate Blog believe the Company Directors behind this particular investment scheme are based in Yatala, located between the Gold Coast and Brisbane. It is believed the company, which produces the steel framing for all of the new buildings, has set up a subsidiary contract building company in alliance with investment spruikers, delivering poor quality uninhabitable homes on this occasion to unsuspecting investment clients.


This type of company, setting up intermediary building companies, are taking advantage of the substantial increase in demand from property investors wanting to set up self managed superannuation funds on the back of government legislation reform and taxation changes on private superannuation contributions.

Questions are now being asked how a licensed certifier could complete the final Form 21 when the building was not completed satisfactorily? And the licensed builder, now the subject of QBCC license termination, could get away with causing such financial stress and mounting losses to innocent investors? How could the QBCC issue licenses in the first instance to seemingly unqualified and underfunded intermediary companies?

This property investment scheme debacle is unfolding at a time when Minister for Housing and Public Works, Tim Mander, said a "new early dispute resolution service would make solving problems between builders and families far less stressful than in the past". (Queensland Government and Ministry Director website, 30 June 2014)


"Contract disputes are never pretty but when you're talking about disputes between mums and dads who are making the biggest investment of their lives, and builders whose livelihoods could be on the line, it's only natural that emotions can run high," Mr Mander said.

"In the past there was no assistance fro families, or for builders, until the contract had either been terminated or completed, which meant the process cold drag on for months.

"This new service will significantly reduce the cost that disputes can place on consumers and contractors as well as substantially reducing the time it takes to resolve them, without legal action.

"This free service is part of our strong plan to grow construction, as we promised, and will create a brighter future for the industry."

Mr Mander, said the early dispute resolution service was just one of a raft of measures coming into effect on July 1 which would make life easier for builders and consumers.

It seems the integrity of the Campbell Newman Government's reforms of the old Building Services Authority (BSA) with the reformed QBCC will face its first real test in light of these serious events unfolding in Townsville, Darwin and across Australia.

Innocent investors already caught up in this potentially explosive property investment scheme impacting Northern Australia, could pay a high price in an economy under enormous strain from a government hellbent on centralised procurement in the lead up to the Commonwealth Games on the Gold Coast.

The depth of impact involves a supply chain of property investment spruikers, mortgage brokers, banks, builders, subcontractors, property managers and the government's own construction licensing regime.

Townsville Real Estate Blog reported in August with insight the impact that new construction and property spruikers were having on the supply and demand dynamic of the Townsville property market. (Boom or Bust? Convergance of Factors Impacting on Townsville Real Estate Market, http://townsvillerealestate.blogspot.com.au/2014/08/boom-or-bust-convergence-of-factors.html)

Owners and contractors impacted by failed construction investments can contact the QBCC hotline on 139 333 for help.

References:

Sunshine Coast Daily

Townsville Real Estate Blog
http://townsvillerealestate.blogspot.com.au/2014/08/boom-or-bust-convergence-of-factors.html

Queensland Government and Ministry Directory website, 30 June 2014
http://statements.qld.gov.au/Statement/2014/6/30/building-disputes-to-be-resolved-faster-and-cheaper

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