18/12/2015 - 12:09

No Scho builds insurance pressure

18/12/2015 - 12:09


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Liquidators have been called in to recover what they can from the assets of Scho Homes, with the builder’s collapse expected to put more pressure on Western Australia’s homebuilding insurance scheme.

No Scho builds insurance pressure
liquidation: Scho Homes is understood to have built fewer than 10 residential projects per year. Photo: Attila Csaszar

Liquidators have been called in to recover what they can from the assets of Scho Homes, with the builder’s collapse expected to put more pressure on Western Australia’s homebuilding insurance scheme.

The builder is the fourth WA housing construction company to fail in 2015, following the collapse of Capital Works Constructions, which traded as Freelife Homes and Visionaire, Benchmark Designer Homes, and Gage Roads Construction.

According to the Australian Securities and Investments Commission, a general meeting of Scho Homes directors was held on December 7, where it was resolved that the company be wound up and liquidators appointed.

However, the liquidators declined to divulge any information to Business News pertaining to the circumstances of the collapse, and also would not reveal how much was owed to creditors of the building company.

Scho Homes was established in 2008 and was named as one of BRW’s fastest-growing companies in 2012, while its founder, Shane Hannah, was also a winner in the 2015 Business News 40under40 awards.

It is understood the builder had around 80 contractors and 12 permanent staff prior to its collapse.

While Business News understands Scho Homes built fewer than 10 homes per year, it operated at the higher end of the market, with its builds worth between $500,000 and $2 million.

One complaint against the company was lodged with the Building Commission in 2012, which was resolved in the State Administrative Tribunal.

Master Builders Association WA executive director Michael McLean said Scho Homes’ failure was likely to raise more issues with the state’s housing indemnity insurance scheme, issues which would be exacerbated by a predicted downturn in activity following a record 31,000 home starts in 2014-15.

“I’m concerned that while we have a statutory scheme that’s not functioning well, it’s going to function less well in a downturn,” Mr McLean told Business News.

“Every casualty we get in the building industry makes housing indemnity less sustainable in its current form where you have a fixed premium pool.

“When that premium pool is declining because of a downturn in the industry, any casualties you get are going to soak up the remaining pool a lot quicker.”

Indemnity insurance has been an issue for builders in the state since Vero withdrew from WA in early 2010, giving QBE Insurance Group a near-monopoly with a 90 per cent share of the market.

The insurance acts as a last resort in the case of a builder’s collapse, with consumers able to recoup up to $100,000 in payments made to a builder from their insurance company.

QBE has already had to deal with hundreds of claims in 2015, most from Capital Works Constructions, which was building 229 homes and had a further 84 in the pipeline.

The influx of claims has resulted in QBE’s decision to lift premiums by 18 per cent from January 1, taking the collective rise in indemnity insurance costs to 40 per cent over the past three years.

The cost of the Capital Works claims alone has been estimated by industry sources to exceed $12 million.

However, one of the terms of an agreement QBE struck in 2010 following Vero’s withdrawal was that the state government would accept the cumulative liabilities valued between $10 million and $90 million, if those liabilities arise from a single builder failure.

While there is yet to be any official word, Mr McLean said he expected the state government would have to foot the bill for the Capital Works Constructions collapse.

“That provides an excellent case study as to why the system is breaking down and creating the unsustainable indemnity insurance scheme that we have,” Mr McLean said.

“The Building Commission needs to regulate more stringently those who are registered and the turnover and the type of buildings they can build, and secondly there needs to be reform of the scope of the housing indemnity insurance scheme.

“We want to sort this problem out because it has the serious impact of eroding confidence, and in a market that’s sliding down, you don’t want to erode consumer confidence.”

Housing Industry Association WA regional executive director, John Gelavis, said it was encouraging that the state government had recently gone to the industry with an expressions of interest campaign to attract more insurers to operate in WA.

The campaign is open to December 31, with insurers and industry groups encouraged to tell the state government what can be done to make the scheme more viable.

“The government has been on the front foot with this and it’s good to see that they see the protection of homeowners and consumers as important,” Mr Gelavis said.

“We understand the scheme is under a degree of pressure but the key thing is we really believe it’s essential that it remains viable.”


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