Today the NSW Building Commission announced a ratings system for apartment developers to "weed out" dodgy developers after HomeBuilder was launched.
The ratings will be applied prior to an occupancy certificate being issued by the NSW Building Commission, with the Commission assessing the rating based on an audit of the prior six months of work a developer has put in to achieve that occupancy certificate.
Speaking to Westpac IQ, NSW Building Commissioner David Chandler said the power will be "blunt" but effective.
“I will select about 10% of [developers], the most risky, and we will conduct an independent audit of the last six months of the work that they put in to achieve an occupancy certificate,” he said.
“As soon as this legislation passes the parliament, consumers should start to feel that we're starting to lay out a pattern of shark nets in the waters."
“We won't catch every shark, but we will catch a large number of them and therefore it's safe to go back in the water.”
The announcement comes after HomeBuilder grants were announced earlier in June to support the construction industry during the COVID-19 downturn.
The NSW Building Commission estimates 20% of developers are responsible for 80% of the material defects in residential apartments in the state.
Under the bill expected to be passed on 1 July, a ratings tool will be used to identify riskier builders and developers.
It is expected the tool will identify a risk ranking of a builder or developer, including key personnel, an assessment of their licensing and insurance, their financial strengths and construction history.
Other states are reportedly developing their own similar policies.
Building a home? The table below features construction home loans with some of the lowest variable interest rates on the market for owner occupiers.
Base criteria of: a $400,000 loan amount, variable construction home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. Introductory rate products were not considered for selection. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term. Rates correct as at 01 September 2020. View disclaimer.
Support for the ratings tool
Westpac Institutional Bank director of construction risk Phil Krimmer told Westpac IQ that there is no simple way for consumers to differentiate between the poor and good developers.
“We want the consumer protected and we want them purchasing quality, fit-for-purpose apartments," he said.
"It's likely going to be the biggest purchase in their lifetime and we don't want them inadvertently being exposed to poor quality and having to pay the price to rectify that."
Such notable defective apartment blocks include the Opal Tower in Sydney Olympic Park, with about 30 apartment owners and tenants having to move out after severe defects were found in late 2018.
Jason Vieusseux, general manager for design management and construction at Mirvac told Westpac IQ the reforms are a good thing for the company.
“It's a good thing for Mirvac because, as a developer and an in-house builder, we control all of the design and delivery outcomes, and that differentiates us,” he said.
“We've reached a point where reform is necessary and, broadly, the reforms that have been proposed by the Building Commissioner are supported by Mirvac.”
Credit ratings agencies are also expected to establish their own ratings models for the Commission in the hope the ratings become publicly available.
Head of product and ratings services at Equifax told Westpac IQ, "It's about building confidence through this transparency and lifting the cloud over the sector".
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2019. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
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