Warning about building company viability

MEDIA RELEASE 21 November, 2013

Warning about building company viability

Residential building firms could be at risk from uncertainties introduced into the national housing market by the Reserve Bank measures to restrict loans, Generation Homes CEO Kevin Atkinson has warned.

He says this also poses risks for home buyers if firms get in trouble. It is only two years since Auckland-based home building firm Sovereign Homes New Zealand Ltd went into liquidation, leaving buyers scrambling to find other builders to complete their homes.

“Companies without strong balance sheets will be under pressure from the drop in new home building associated with the lending restrictions imposed by the Reserve Bank,” Kevin says.

There is also a danger of firms becoming overstretched in markets such as Christchurch.

“The holiday period can be tough for building firms, especially those with substantial working capital tied up in projects, when activity and cashflow dries up,” Kevin says.

“The current government focus on the cost of building could add pressure to a market where margins are falling despite rising prices.”

Chief Executive of the Registered Master Builders Federation, Warwick Quinn, has estimated that some 3000 new homes may be affected by the tightening of loans for house purchasers.

Despite potential glitches in the market, Generation Homes is looking to expand its 14 Joint Venture (JV) operations throughout New Zealand.

“Many national home building companies operate on a franchise basis which can put pressure on the firm as fees are paid on every home completed. This in turn places extra demand on capital for the company,” Kevin says.

Generation Homes JV model leaves the capital in the business and supports the operation with advantageous national supply agreements.

“We’re a $100 million company now, building more than 300 homes a year and coverage across all of New Zealand is next on the agenda,” Kevin says.

“We’ve been in business for 16 years and we’ve survived through New Zealand’s worst housing recession in 60 years, which saw many companies go to the wall.

“Two years ago we were doing 100 houses and now we’re pushing towards 300,” he says.

Kevin says Generation Homes has a unique joint venture structure which provides local people with ‘skin in the game’ the opportunity to invest, work and thrive in their own community.

The 50:50 JV model is backed by national supplier agreements that see rebates channelled back to the local business.

“Generation Homes has 200 architecturally designed house plans for use by the JVs. The company’s financial and customer relationship management systems provide the tools needed to deliver the ‘fixed price, on time’ guarantee as well as robust client communication processes.”

Kevin says the JV arrangement is ideal for people who have experience in the building industry or for entrepreneurs or successful businesspeople who are interested in investing in a business in their local area.

The company was founded by Kiwis Graham Hockly and David Mansel in Tauranga in 1997.

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