A developer’s decision to bail on a $30 million land deal in South Auckland has cost them dearly.
The deal for the six hectares of land zoned for intensification was inked over two years ago, just as the market peaked.
However, the buyer could not make the subdivision work financially in the current market so walked away, forfeiting their $5m deposit.
Harcourts agent Aman Gulia, who has already found a new buyer for the property, told OneRoof that this was not unusual for big developers.
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“They have a pipeline, it’s a process,” he said. If they’ve over-extended themselves elsewhere, they’d rather let a deposit on a new project go than lose their entire business.
“These numbers might look big, but it’s everyday business [to them]. You win some, you lose some. When the market is good, they’d make this money back and more.”
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Gulia’s colleague, David Findlay, said the market had squeezed some developers.
“There is no bail out. For smaller developers, it has reached a tipping point. They’re the ones that are getting out,” he told OneRoof.
Those who managed to complete their builds were now benefitting from falling interest rates and the change in buyer sentiment.
“Our sales of completed new homes has more than doubled just in the last weeks. We’ve gone from selling three new builds a week to about eight. There is hope for those developers who have hung on.”
Harcourts No.5 agent worldwide Aman Gulia said that smart developers would rather walk away and lose their deposit than risk their business on an uneconomic project. Photo / Fiona Goodall
Smaller scale developers who weren’t caught by the frenzy are back in the game, he said. At a Harcourts auction on Wednesday, 60 people packed the room for an “absolutely destroyed” 1950s two-bedroom house on Norrie Avenue, in Mount Albert.
The property, which was zoned for development, sold for $1.41m – $170,000 above a valuation the company had done. It had a CV of $1.65m. “Developers were fighting over it.”
Findlay said there were plenty of developers who didn’t time things well. He had some eight developers on his books who needed to quit their holdings at distress rates.
Tom Rawson, co-owner of Ray White Manukau, said buyers who bought at market peak had been hit with falling prices and rising rates, with some developers paying interest rates of more than 10%.
“People are re-doing their feasibility based on [today’s] numbers compared to when they entered the project, and realise they could complete the project for an even greater loss than if they just exited now.”
One such developer is MJ Homes, who has just put up for sale a luxury seven-bedroom home near the water at Park Green, on the edge of Rosehill, Papakura.
The brand-new 300sqm house at 19 Catalina Avenue is being marketed by Barfoot & Thompson agents Kay Lin and Annie Ly for auction on September 11. The agents said in their advertising that an “urgent sale needed”, telling buyers they can “lock in a lower price” with the vendor willing to meet the market.
MJ Homes project manager Paul Wong told OneRoof that the company expected to make a loss when they sell.
The developer of a luxury seven-bedroom house on 19 Catalina Avenue, in Rosehill, Papakura is prepared to sell at a loss to get rid of the mistimed project. Photo / Supplied
More than 60 developers flooded the auction of a deceased estate property in Mount Albert Grammar zone that sold for $1.41m. Photo / Supplied
He said the Catalina Avenue property fell outside the company’s usual build-to-rent business, which had hundreds of standalone, terrace and townhouse properties, but when they bought the land in 2021, they were thinking it would suit an upscale rental or an Airbnb as it was near Karaka.
However, he said, the company now needed to sell it as part of a “broader balance of the portfolio” and was prepared to take a loss. Wong said they paid $878,000 for the 456sqm corner section in September 2021, the peak of the market, but with Covid-related delays the building didn’t start until early 2023.
Wong said the residence cost more than $900,000 to build as the company used higher quality materials, so with holding costs he estimated the project had cost around $1.8m. But with similar recent sales in the neighbourhood topping out at $1.6m, the company was prepared to cut their losses.
“We can put the money into more successful growth, we have a number of ongoing projects for build-to-rent.”
Agent Kay Lin said that while interest in the property had been high since open homes started last week, they have not had any price feedback from buyers yet.
“But in July we sold a six-bedroom property on nearby Evergreen Parade, a new build although not as good quality, for $1.6m. The owner tried to get their money back at $1.7m, but there wasn’t much interest so they lost around $100,000.”
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