Caution urged as Hawke's Bay construction company Fargher Construction goes into liquidation

Builders are being urged not to take on more than they can manage as Hawke's Bay's building boom continues apace, after the collapse of one of the region's major building names.

Latest statistics show resource consent was granted for 42 new homes in Hawke's Bay in January, eight more than the same month last year.

Those houses had a combined value of $16 million.

However, that was not enough to stop Hawke's Bay-based Fargher Construction, which held licenses for the A1 Homes franchise in Hawke's Bay, Gisborne and Taupo, from going out of business.

A liquidators' report into the collapse of Fargher Construction said the company had advised that it had faced cashflow issues before liquidation.

"These were compounded by a significant supplier ceasing to provide further credit to the company, which ultimately resulted in the director's decision to cease trading," the report said.

New Zealand Building Industry Federation chief executive Bruce Kohn pointed out that boom times also needed careful planning, to avoid mounting losses.
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"Competition is intense throughout the building industry at present. But boom times in many urban and regional areas lead to intense pressures on management to keep a close watch on both the financing of new builds and developments, and maintenance of commercially justified margins.

"The competitive pressures on Fletcher Building in top level vertical construction reflected these pressures. Sub-contractor costs are rising because of the skills shortage.

"Banks and private financiers are acutely aware of these pressures. Neither they nor the industry want to see a race to the bottom develop in which profitability margins are commonly cut to beat out competitors but in turn threaten the viability of the competing building businesses.

"Builder organisations are stressing to their members the need to maintain quality management practices. They know the credit suppliers are on a watch for signs of business problems in that area."

Hawke's Bay Chamber of Commerce chief executive Wayne Walford said there was industry help available for those who were overextended.

"I'm not sure if there's a culture of people putting up their hand if they need help. There are lots of people out there with experience, lots of people out there willing to help.

"We need to get that message out there and change the culture a little bit."