A Melbourne developer has scrapped plans to build a $500million apartment tower on the Gold Coast, blaming the slump in the building industry and soaring construction costs for making the project unprofitable.
The development was due to start this year with 486 apartments in a 56-storey tower, known as Pacific One, and was to be built on a beachfront block in Surfers Paradise.
The apartments had been sold from a starting price of $650,000 each.
The developer called Central Equity declined to reveal how many apartments had been sold off-plan for the project, but said buyers had been told construction had been canceled and their deposits refunded.
Central Equity has been operating for 35 years and has completed 85 developments, but this will be the first time a project has not been completed by the developer.
He said “industry sources” had claimed that unit prices would have to rise by 20% to cover rising labor and construction costs and that it was best not to proceed in a climate of “economic turbulence”.
“Following ongoing discussions with builders and the amount of surveyors regarding global supply chain turbulence and the crisis in Queensland’s construction industry, Central Equity has decided not to pursue development of their Pacific One apartment tower on the Gold Coast,” Central Equity said. in a report.
“The malaise facing builders, including staff shortages and supply chain disruptions, has led to an unprecedented escalation in construction costs for developers, rendering Pacific One economically unviable.
“The decision was not a matter of demand, and all deposits will be returned to buyers and potential buyers.”
Pacific One was to be Central Equity’s first apartment project outside of Victoria, having completed 80 high-rise towers in and around Melbourne’s CBD over the past three decades.
However, the developer will keep the Surfers Paradise site and may redevelop it later.
Central Equity has nearly completed a 590 apartment project in Melbourne and also has four major developments under construction.
Experts have warned that more high-rise projects could fail at the planning stage due to rising costs, especially as developments take a long time to build and only certain builders can support them.
Sharp increases in interest rates also put additional pressure on the already strained construction industry.
“The industry has been plagued by rising crude oil and electricity prices, and supply shortages of key commodities, including timber,” said Matthew Reeves, senior industry analyst at IBISWorld. “Extensive flooding in New South Wales and Queensland has exacerbated these issues over the past six months. The floods disrupted the import and transport of goods across Australia, and damaged and delayed construction projects.
The construction industry, which has been plunged into crisis with a series of collapses this year, as building giants and smaller operators are hit.
Earlier this year, two major Australian construction companies, Gold Coast-based Condev and industry giant Probuild, went into liquidation.
The grim list continued to grow as a number of other top companies also collapsed including Inside Out Construction, Dyldam Developments, Home Innovation Builders, ABG Group, New Sensation Homes, Next, Pindan, ABD Group, Pivotal Homes and Solido Builders, Waterford Homes, affordable modular homes and statement builders.
Then two Victorian building companies were further victims of the slump after going into liquidation at the end of June, with a homeowner shelling out $300,000 for a now half-built home.
Snowdon Developments was put into liquidation by the Supreme Court with 52 employees, 550 homes and more than 250 creditors owed just under $18 million, despite being partially bought out less than 24 hours after its bankruptcy.
Dozens of homeowners and hundreds of traders have been reeling after a Victorian building company called Langford Jones Homes went into liquidation on July 4, owing $14.2 million to 300 creditors.
Hotondo Homes Horsham, which was a franchisee of a national building company, collapsed last week affecting 11 owners, the second franchise to collapse after the Hobart branch went bankrupt earlier this year with 1.3 million dollars of outstanding debt.
Dozens of owners have also been hit hard by the crisis.
A Sydney family have never been able to build their dream home after their builder collapsed in March in front of millions and the cost of building their home jumped to $1.9million , which is $800,000 more than the initial estimate.
Commercial credit bureau CreditorWatch found that key construction industry credit indicators, such as late payments and insolvencies, are expected to worsen over the next 12 months as the impact of the collapse of leading companies leaves a lasting impression.
“All major credit metrics, from insolvencies to payment behavior, point to tough times ahead,” said data firm Open Analytics CEO James O’Donnell.
“The industry-specific challenges of late payments are of particular concern for small and medium-sized business contractors and suppliers, who seek to deal with builders who pay quickly, an increasingly difficult task with around 12% construction companies with an average of more than 60 days in arrears.
“This explosion in reimbursement times is far greater than in any other industry, representing the near normalization of late payments and extremely thin margins in the industry.”
A healthy construction industry is essential to a strong economy and continued growth, with the sector accounting for employment of nearly 9% of Australian workers and 7.5% of Australian GDP.