BGC Housing hangs in the balance

From 4,205 new homestarts to zero.

The company that formerly held the title of the state’s biggest home builder, BGC Housing, announced today it will stop accepting new sales for the foreseeable future.

The business started 4,205 new homes nationally in the 2021 financial year, according to the HIA Housing 100.

Business News reported in early March that BGC had capped new home sales in June 2022, and HIA data from the 2022 financial year showed 1,980 commencements nationally.

But the announcement will mean the business moves away from taking on new home builds, and there’s no certainty as to when, if ever, it will restart.

Today, BGC chalked up the decision to labour shortages, and said the pandemic and supply chain issues had affected the availability of materials.

“This decision, effective immediately, will allow us to focus all our resources entirely on existing customers – many of whom we know have experienced frustrating delays,” BGC Housing executive general manager Michael Bartier said in a statement.

“The decision will impact some jobs in the business’s sales and administration departments.

“Wherever possible, redeployment opportunities will be offered.”

BGC lost nearly $42 million in the 2022 financial year, with its annual report sheeting a large portion of the blame to the residential construction arm of the business.

Residential revenue was about $294 million over that 12-month period, a big portion of the group’s $1 billion overall revenue.

The losses in the residential arm present a challenge for the group, as do potential lawsuits.

One industry source speculated that plans to sell BGC, which were canned for a second time in August last year, were thwarted by problems in the homebuilding business.

A spokesperson for the company rejected that assertion today when asked by Business News.

“The sole reason for the suspension is to allow all resources to be focused on completing the homes of existing customers,” they said.

Nonetheless, BGC has offered little guidance on any plan to resume new home contracts.

The sales halt would be reviewed “when the availability of labour improves and a decision on recommencing sales will be based on market conditions at that time”, BGC said today.

Stopping new home contracts and cutting back on salespeople may have limited utility in helping finalise existing builds.

Speaking to Business News last month, UDIA WA president Col Dutton said the availability of front-end trades was changing, with new buyers in coming months not likely to be affected by the choke points in the market.

On the flipside, finishing trades - later stages of the build - were at peak demand, he said.

In addition to supply chain disruptions and cost escalation issues, BGC's annual report highlighted rising inventories in its materials businesses and higher working capital as it moved through the pipeline of homebuilding work.

Inventory, which are goods and materials held for sale, lifted from $19 million to about $35 million, while contract assets jumped from $39.6 million to $74.6 million.

Contract assets represented revenue to be claimed from customers in later periods as builds progressed.

Those numbers give an idea of the troubles the company had moving through builds.

The report also warned of an abnormal level of failures in plumbing works for BGC Residential and Ventura, which it deemed a contingent liability.

Since then, media reports have suggested a class action for customers with faulty pipes is under consideration.

BGC is also subject to a class action from Morgan Alteruthemeyer Legal Group.