So is it only the project development companies that are suffering under these circumstances? If the building project has been pre-sold at a fixed price and the building company becomes insolvent due to a lack of interim financing, often due to contracts that do not cover the cost of completion or through the sale of part-ownership units, then the owners are forced to demand their rights to the property and to pay for its completion with additional money of their own. Taking such measures is cost-intensive and usually means paying significantly more than the originally agreed purchase price, so this is not affordable for everyone. If the financing took place through real estate funds, this generally means that investors lose a large part of their investment.
Building tradesmen are also affected. Their invoices often remain unpaid. Defaults like this are on the increase. Especially in large projects and when there is a lack of new work, these defaults can be catastrophic for building trades companies and ultimately can lead to bankruptcy. Currently, there still seem to be enough contracts available in the building industry, but some companies are already complaining about financial difficulties. It can be expected that the situation will get worse as competition is increasing and the prices that can be achieved will no longer be as profitable as in recent years.
If the project developer relies on interim financing from banks, there is a possibility that this financing will not be available, which in turn may increase the need for write-downs at the lending institutions. This makes it clear that the financial stability of building companies must be closely monitored by both purchasers and investors, but also by companies that work with these building project companies. In general, this shows that in the building industry careful creditworthiness evaluation of all participants is of great importance.
