Australia’s construction sector is facing mounting financial pressure, with business conditions turning negative for the first time in six years and buyer confidence in new developments continuing to weaken. In the latest episode of the Apartments.com.au Market Insights podcast, Mike Bird sits down with Brad Walters, General Manager, Commercial Product at Equifax, to examine the industry's growing risks and how independent iCIRT ratings are helping developers, buyers and funders make more informed decisions.

With iCIRT now expanding into Victoria, the discussion comes at a critical time for a state grappling with tighter construction margins, rising insolvencies and increasingly cautious property buyers.

Construction businesses are under growing financial pressure

Equifax's latest Market Business Pulse data paints a challenging picture of Australia's construction industry.

Demand for growth capital has fallen 19 per cent year-on-year, with an even sharper 24 per cent decline among smaller construction businesses and subcontractors. At the same time, more businesses are seeking finance to support day-to-day operations rather than expansion.

Payment performance is also deteriorating. On-time supplier payments have fallen three per cent, early arrears have increased five per cent, and total tax debt disclosures across construction are up 25 per cent.

Perhaps most concerning is the impact on industry capacity.

"We've seen 19 per cent fewer businesses coming into the construction sector on last year. At the same time, we've seen a 58 per cent increase in exits in construction," Walters explains.

With Australia already facing trade and labour shortages, the departure of construction businesses threatens to place further pressure on project delivery.

Why Victorian developers face a tougher environment

While Victorian construction businesses have slightly stronger average credit scores than their interstate counterparts, Walters says those figures mask deeper financial challenges.

Victorian builders are operating with profit margins approximately one per cent lower than businesses elsewhere in Australia, alongside weaker working capital positions.

Trade payment performance is also significantly worse, with early arrears 19 per cent higher and serious payment delinquencies, classified as 90 days or more overdue, reaching four times the national comparison rate around the middle of the year.

Small business insolvencies in Victoria rose 33 per cent during the second quarter, almost twice the rate experienced across the rest of Australia.

These conditions help explain why the expansion of Equifax's iCIRT rating program into Victoria is particularly timely.

A widening confidence gap among new apartment buyers

Beyond the financial pressures facing builders, Walters identifies an equally significant challenge: declining buyer confidence.

According to the iCIRT Construction Index, the proportion of adult Australians intending to buy, build or renovate within five years has fallen from 51 per cent to 38 per cent over 12 months.

For those considering newly built properties, concerns extend beyond affordability.

Equifax research found that 78 per cent of prospective new-build buyers are concerned about developer or builder solvency, while nine in 10 worry that financial pressures could lead to construction shortcuts or defects.

Confidence is particularly low among apartment purchasers.

"Only one out of 10 buyers that are looking at multi-units or apartment buildings [...] are very confident in the actual structural integrity of the quality, the durability of their building," Walters says.

Project delays compound these concerns. Just 23 per cent of respondents involved in new builds reported that their projects were running on schedule, while more than a third had an affordability buffer of five per cent or less.

For developers selling off-the-plan apartments, establishing confidence in construction quality, financial stability and delivery capability is becoming increasingly important.

How iCIRT ratings help buyers and developers assess risk

Developed by Equifax in collaboration with industry, iCIRT is an independent credential designed to assess the capability, conduct, capacity and resilience of construction businesses.

The assessment considers approximately 150 attributes across six criteria, examining whether a business can reliably deliver projects and stand behind its completed buildings.

Importantly, the program is not limited to major developers.

Walters explains that iCIRT has been designed to accommodate boutique developers, smaller builders, new market entrants and special purpose vehicles (SPVs), considering the experience, track record and financial arrangements of the people behind each business.

However, obtaining a rating is not automatic. Approximately one-quarter of businesses assessed fail to meet the minimum eligibility threshold.

Walters also highlights the program's risk-identification capabilities, stating that iCIRT has identified more than nine in 10 construction collapses one to two years before they occurred, sometimes earlier.

The commercial implications are significant. According to Equifax research, two-thirds of prospective new-build buyers are prepared to pay a premium to work with a rated developer or builder.

Why funders and regulators are taking notice

The benefits of independent assessment extend beyond purchasers.

Walters points to research showing that six in 10 banks and private credit providers in New South Wales were already incorporating iCIRT into their due diligence processes earlier in the year.

Rated developers have also reported faster and easier access to finance, with increased competition among lenders potentially improving funding terms.

The program is gaining traction among regulators and insurers, too.

In the ACT, iCIRT ratings form part of the territory's property developer licensing framework, while Equifax has also been working with the Commonwealth Government on a national developer rating scheme.

Insurers are increasingly incorporating ratings into assessments across construction-related insurance products.

For Walters, this broader adoption reflects a shift towards independent verification rather than relying solely on developer reputation or marketing claims.

Building trust in Victoria's off-the-plan market

As Victoria's construction industry works through ongoing financial and delivery challenges, independent credentials such as iCIRT could play a greater role in how buyers assess new apartment developments.

Walters says more than nine in 10 prospective new-build buyers and investors want access to an independent register of reliable, rated building professionals.

For developers, the opportunity extends from strengthening pre-sales confidence to attracting finance, securing project partners and demonstrating the capacity to deliver.

The underlying message from the conversation is clear: in a market where buyers are increasingly conscious of construction risk, independently demonstrated capability could become an important point of difference.

Watch the full Market Insights Episode 121, featuring Mike Bird and Brad Walters, to hear more about Australia's construction outlook, Victoria's particular challenges and the role of iCIRT ratings in rebuilding confidence across the property development sector.