Development and Building Industry Reforms - December 2020

By Guest Blogger: Peter Faludi, Peter Faludi Consulting

www.peterfaludiconsulting.com.au

Some developers may miss out on 2021 property boom - Development and construction industry reforms to increase costs and change the industry

As you may be aware, substantial reforms to the development and construction industry were introduced in NSW in 2020.

These reforms become effective on a staged basis, with some already operating while others will become effective from 1 July 2021

The changes are intended to improve the standard and quality of construction in NSW and thereby avoid the nightmares of the Mascot and Opal towers. To achieve this, building and design practitioners will be required to be registered. In order to be registered, they must satisfy certain criteria, including:

-           having certain qualifications

-           having a minimum level of experience

-           being adequately insured

-           satisfying ongoing training requirements

They will also need to comply with strict reporting requirements and conduct their business in accordance with an industry Code of Practice.

The Building Commissioner will be taking an active role in checking construction sites identified as having potential problems and will also be able to do random checks.

He will also have the ability to:

-           issue stop orders to close down work on sites,

-           issue building rectification orders

-           prevent the issue of occupation certificates and the registration of strata plans until he is satisfied that all requirements under the legislation and Building Code have been met.

These changes are here to stay and will increase the costs of residential and certain mixed-use developments. Cost increases will result from the additional expenses to be incurred by design and building practitioners on such matters as:

-           undertaking further training to upskill staff,

-           taking out the required insurance,

-           implementing/adjusting systems to comply with new reporting requirements and  the Code of Practice,

-           employing more experienced staff, and

-           using better quality building products.

As the extent to which individual practitioners need to attend to the above matters will vary, and the costs involved will also vary, it is unclear how significant these additional costs will be. They will, however, squeeze profit margins unless prices for the built lots can be increased accordingly.

Some of the more detailed requirements are contained in the draft Design and Building Practitioners Regulation 2020 (released on 17 November 2020) which is open for comment until 11 January 2021. Building and design practitioners only have until 1 July 2021 to become compliant with the new requirements.

As these rules are very detailed, there is little time to waste before seeking advice and adjusting to the new rules.

Failure to comply with these rules can lead to hefty fines, disciplinary action and project delays. It can also result in potential liability for breach for up to 10 years after construction work is completed and personal liability for company directors for contraventions.

In addition to the new regime, a one stop database and a rating system are being developed. As a result, developers and building and design practitioners with less than a good track record may find it increasingly difficult to sell their product and raise finance.

While the general view appears to be that 2021 will be a good year for residential property and development, some participants in the industry may not be able to ride this wave if they are not able to comply with the new regulatory regime or achieve an acceptable rating.

It will be interesting to see how this new world pans out. It may lead to consolidation and reduced competition within the industry as well as a shift in strategy by some developers. For example, some developers and building and design practitioners may prefer to reduce their exposure to residential development and become more involved in non-residential projects going forward.

One thing seems certain. The property industry will be significantly different in many respects in 2021 and beyond.

Peter Faludi Consulting - Call  0401 500 528 or Email  peter@peterfaludiconsulting.com.au

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The comments made in this Article do not constitute the provision of any legal, tax or accounting advice by Peter Faludi Consulting or any Director or employee thereof and therefore you should not rely on this Alert in making any decisions relating to present or future transactions in which you are involved. We strongly recommend that you seek legal, tax and/or accounting advice (as relevant) in relation to the same.  

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