Wellington’s development market has gone cold although some developers are bucking the trend and continuing to complete projects, agents report.
At the height of the market developers were snapping up sites for large sums but the market has slumped and for some building is now too costly.
Some of those properties are now back on the market.
Agents point to not just developers but the buyers of off-plan townhouses no longer being able to get finance as among the reasons for the pain in the market.
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Grant Henderson, Bayleys Wellington residential regional manager, says a lot of projects are on “pause” and he expects there will be liquidations.
“There are a lot of developers who have stalled and almost abandoned building sites in the Wellington region at the moment,” he says.
“However, what we are seeing is there are some well-heeled, some well-experienced and some well- funded and capitalised developers who are pushing through and are continuing to progress.”
Rachael Ayling, business development manager for Professionals Upper Hutt, says some developers are beginning “crash out” on deals, and Nicki Cruickshank, principal of Tommy's, says aside from the odd developer the market is “pretty dead”.
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A property in Paparangi, between Newlands and Johnsonville in Wellington City, is back on the market after selling in November, 2021, for $4.35m - $1.78m over its September 2021 RV of $2.57m, according to OneRoof records.
The 4671sqm site has a five-bedroom house on it and OneRoof shows it was listed in December.
The agent says the vendors don’t want to comment but the listing describes the property as having resource consent granted for 28 townhouses - “a clever mix of two and three-bedroom homes designed by award-winning architects Shepard & Rout”.
The large amount of near flat land with dual access makes the site ripe for development or land banking, the listing says.
Another listing, a collection of four properties in Lower Hutt, has resource consent for 40 homes on more than 4000sqm of land. It is being presented as “an amazing opportunity”.
“It takes time and money to get to this point,” says the listing, which describes a fully fenced, flat site with different access options.
OneRoof records show one of the properties was sold in August last year for $1m.
Henderson said there were developers in the city who have walked away from sites because they either cannot get finance or they cannot build for the price they would need to get in today’s market (his comments, though, were not made in relation to the above listings).
“So as a generalisation, yes, you would say that probably 65% of developers that are not experienced have paused and yet there are those that are still pushing very hard.”
A project he says is going ahead is a Palmer & Cook development in Mana, and he says Stratum Management is still building and selling properties in Tawa and Petone. Another company, Transformations, has finance and is still going strong in Wainuiomata, and there are others still building.
But some of the “smaller guys generally” have pushed pause and Henderson says some will be facing “horrific” costs.
10 Hillview Crescent, in Paparangi, Wellington, is a 4671sqm site with resource consent granted for 28 townhouses. Photo / Supplied
“The thing is if you're on normal bank finance at the moment and it's a commercial loan you're paying 8 or 9%,” he says.
“If you've then got mezzanine finance on top of that you're probably sitting at 14 to 18% - no one’s making any money. How long do you keep paying 14 or 18% to a mezzanine finance funder on something you can't build, can't construct, with no income.”
Developers need to get a certain amount of presales before they build but people are not buying, he says.
It’s now a game of attrition for some to see how long they can hold on. People who can afford to keep paying the debt may come out the other end but some will not be able to sustain it: “That's correct and there will be liquidations - that unfortunately will happen.”
Nicki Cruickshank says the townhouse market is quiet in Wellington, with investors mostly pulling out although there are still first home buyers around.
There is product still being built for the downsizer market, however, she says, “but that would be the only part of the market that is in terms of developments”.
Tommy’s handles Gibbons Co projects and Cruickshank says the developer is still actively looking for sites. The company has many projects it is working on completing with the majority of properties sold, she says.
A Gibbons Co project at Central Terrace, where the site was bought for $6.5m in 2021 and the 1930s bungalow demolished, now has 14 terrace houses which have just settled, she says.
But sales generally are slower for reasons such as increased interest rates and the increased cost of living, and investors are not drawn to buy like they were because of changes in their ability to claim interest.
Some developers don’t want to take the risk of their projects not selling, Cruickshank says.
“They've got to borrow all that money and expensive interest rates for holding land so you can understand people being a bit cautious about that.
1274 High Street, in Taita, Lower Hutt, is for sale with resource consent granted for 40 homes. Photo / Supplied
“Certainly, a lot of the smaller developers that always pop up in the good times have disappeared.”
The Hutt Valley saw a lot of development during the boom times but Rachael Ayling says that went cold last year, “absolutely cold.”
At the height of the market many developers were overpaying, she says.
“We got up to $1500 per sqm at the peak of the market and now we’re probably about $800 or $900 per sqm, so it’s a huge difference in price.”
She says as business development manager she would put properties together as a package for developers to buy who would do year-long settlements but some developers keep extending settlement dates because they don’t have the money to pay for the build, she says.
As part of a “dominos effect” there are buyers who are no longer able to get finance to pay for the property since they originally signed up and paid a deposit on an off-plan purchase.
“The bank has gone, ‘no, you can’t actually buy this now’, and so we’ve had a few cases where buyers can’t actually settle it, and they have to settle it.”
She says she knows of some developers who have gone into voluntary liquidation, and she knows of a business owner who downsized and went back to the tools in order for his company to survive.
Of late there are some developers starting to “put their heads up” and look at buying again, she says, saying there are likely to be deals to be had.
“It's people with money, who have actually got cash, who don't have to go to the bank, they are the ones that are going to do well out of this.”
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