The gold-star system driving dodgy property developers out

New apartment buyers are shunning unit blocks by builders and developers who have been refused, or have declined to apply for, a quality rating under the NSW government system designed to instil fresh confidence in the property industry.

As gold-star rated developers report a spike in business from buyers, the two-year-old Sydney scheme might soon be extended to Victoria, the ACT and Queensland.

“Over the last 10 years, we’ve seen so many failures in the development world [like Mascot Towers and Opal Tower] that people lost a lot of faith in the industry,” said Tim Spencer, head of development at Norwest developer Mulpha, with a high 4.5 gold-star rating. “So the ratings system has proved an excellent tool for rebuilding that trust.

“It’s been cleaning up the industry and getting rid of the bad players and empowering consumers by providing them with a good third-party yardstick to go by.”

The Independent Construction Industry Rating Tool, or iCIRT, provides a register of “trustworthy” developers, builders and construction professionals who have undergone a rigorous review of their business.

Brad Walters, head of product and rating services at Equifax Australasia Credit Ratings, said: “Nearly 500 businesses have volunteered, representing more than 25 per cent of all medium and larger NSW developers and builders with a collective value of more than 50 per cent of all residential building activity in the state.”

Some developers who have failed to gain the gold star are scrambling to improve their performance and systems, he said, while last year’s collapse of Porter Davis Homes, owing $146.5 million to creditors, sparked interest from Victorian buyers.

For Brittany Wells, 25, and her partner Jordan Do Rozario, 24, that gold-star rating was a critical factor in their decision to buy their first homes off the plan in northern Sydney’s Pennant Hills.

They’d been looking for three years before settling on two one-bedroom apartments at Highforest by Mirvac – a developer with iCIRT’s five stars.

“I was quite nervous about buying an apartment, particularly with all the publicity around those apartments in Castle Hill with so many problems,” said Wells, a contracts administrator. “I got a bit of an idea about iCIRT from the media and then looked into it.

“So with Mirvac’s rating, I felt very confident about investing in such a well-known brand, and that made all the difference for me. I’d looked at other apartments before but never gone through with them.”

The scheme’s architect, NSW Building Commissioner David Chandler, said it had had a huge impact.

“We know people have been going to look at apartments and saying that if the developer doesn’t have an iCIRT rating, then they’re going to go elsewhere,” said Chandler. “Sales agents say they won’t work with developers without one as they won’t earn commission.

“I’m giving talks to students and asking them if they really want any of these non-rated companies on their CVs, while the banks are also saying they want to see good governance, and the companies realise that they have to rebuild governance structures as having a lot of entities that look like a house of cards isn’t wise.

“The number of people who now know what good buildings look like is growing and it gives them the chance to get off the slippery slope down and onto the ladder that’s taking them up. For industry, it’s provided the chance to get off the race to the bottom and develop a product they can be proud of.”

Mirvac’s chief executive development Stuart Penklis said visitors to the company’s display suites were asking about the ratings.

“Consumers are now a lot more informed than they’ve ever been, and doing a lot more research and the ratings really give them confidence and trust,” he said.

“We’re certainly hearing from a number of peers and competitors that those developers without a rating, or with a low one, are seeing challenges in selling off the plan.”

Another developer with a high 4.5-star rating has also seen its effect. HELM managing director Mark Monk said the past two times they launched projects, “we had a large number of people asking about iCIRT and being aware of it, which was really pleasing for us.

“We’ve certainly noticed people’s attitudes changing towards the industry in the two years it’s been around.”

Vice president of the Urban Development Institute of Australia Rick Graf, development director of 4.5-star Billbergia, sees it as an important credential.

“It’s a reassuring factor for anyone who might be concerned that a developer will deliver what they promised and come back to fix anything that needs to be fixed later,” he said.