Gold Coast development: Surfers Paradise Pacific One supertower dumped by Central Equity
One in five towers proposed for the Gold Coast will never proceed as construction costs soar. Now, struggling developers are being forced to consider drastic measures.
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High-profile developers are secretly shopping their high-rise sites to colleagues, with fears one in five proposed towers won’t get off the ground.
The Bulletin knows of at least four major developments already shelved in the face of skyrocketing construction costs.
Now, four months after the sector was rocked by the collapses of builders Condev and Pivotal, developers are facing dramatic losses on major projects. One calculates they would lose up to $14m on a typical $500m project.
The developer told the Bulletin they would have made a $100m profit on the same project just a year earlier.
A special Bulletin investigation has found:
■ Many developers are reviewing their projects which are yet to begin construction as they face the prospect of building at a significant lost.
■ The current high material costs will continued to plague developments for up to two years, causing towers to be put on hold.
■ Banks are still willing to lend funds for projects under the right circumstances.
■ Many builders are so busy they are having to delay accepting work for up to six months.
This week saw Melbourne-based developer Central Equity abandon its plans for its $500 million Pacific One tower in Surfers Paradise and refunding the deposits of all buyers. In a statement, the company said the decision had been made after discussions with builders and surveyors.
“The malaise facing builders, including staff shortages and supply chain disruption, had resulted in the unprecedented escalation of construction costs for developers, making Pacific One economically unviable,” the statement read.
THINNING THE HERD
Just one in five projects currently before the Gold Coast City Council will ever proceed to construction, according to experienced developer Soheil Abedian.
The Sunland Group founder, who has been developing in the city for 40 years, said the Gold Coast would bounce back from the industry downturn but it would come at the cost of many of the 80 projects either before council or approved but not yet built.
However, Mr Abedian said the slowdown, while difficult in the short-term, would be a good for the market in the long-run.
We have seen a major and unprecedented boom occur thanks to the pandemic but at the same time we have seen Condev and Probuild go bankrupt while a number of housing companies have liquidated, but this is not unhealthy,” he said.
“No economy can go through such a disproportionate situation because otherwise the value of an asset goes so out of control that nobody can afford to buy a new house.
“I see it as a positive because in the next six to 12 months you will see a large number of tower sites where projects have already been approved going on the market.
“A number have already approached us asking if we can buy their sites.”
DEVELOPMENT SUBURB BY SUBURB
Real estate industry sources confirmed to the Bulletin multiple high-profile developers had made approaches in recent months to market their sites in the face of being unable to proceed with their approved developments.
“There are a number of developers who are trying to shop their sites at the moment but any buyers who could pick them up are facing the same issues,” a prominent agent said this week.
“There are some opportunities for those who are willing and financially able to take a long-term term view.
“The biggest impediment to these developments is the construction costs because there are still so many tradies who are working and banks have money they are willing to lend.”
Mr Abedian, who is winding down his publicly listed company while pushing ahead with plans for his own privately developed tower at Mermaid Beach, said developers who had significant financial reservoirs and could afford to wait at least a year until construction costs stabilised would be the best placed to continue building.
“I have witnessed this in my 40 years building on the Gold Coast,” he said.
“When you look at it overall, it is good to step back, breathe in and allow the cycle and value to find its own feet.”
COUNTING THE COST
Construction costs for developers have increased by up to 40 per cent in the past year, on the back of supply chain issues, making many projects unviable.
One experienced developer insists it will be far from the last high-profile project to go.
“The construction costs are dramatically increasing and we’re talking about 40 per cent here, with no sign of slowdown in that or how much tradies now cost along with the supply chains continuing to struggle,” the prominent developer told the Bulletin this week.
“There will be a huge number of projects not proceeding because they do not stack up and, even if they did proceed, the banks won’t fund them in this market without a tier 1 builder already attached and there aren’t a lot of those who aren’t already very busy.
“It’s a perfect storm and unless you are seriously capitalised, there is going to be a bloodbath”.
BUILDER’S PARADISE
The slowdown in the property sector has not put a handbrake on construction, with more than 40 cranes on the skyline and several major projects due to turn the first sod in coming weeks.
Meanwhile, the Gold Coast’s population continues to increase by nearly 15,000 people annually and not enough new units and housing going on the market to satisfy the demand.
Master Builders Gold Coast regional manager Adam Profke said activity remained high in the city, though he expected to see more approved projects be shelved.
“The market has changed and the fringe projects, which were borderline feasible even before this, are now being hit by a whole range of factors,” he said.
“It’s not uncommon to see projects stop-start and some may return with a redesign to suit the market but the increasing construction costs are not helping these projects remain viable.
“But in terms of the amount of work tradies have, a lot are maxing out their capacity to deliver on projects and some builders are so busy they cannot start on anything new.
‘This means some people will have to wait longer to move in.”
‘Year of pain’: Devastating blow to Coast development
Leading Gold Coast property experts warn the city’s building and development market faces at least a year of pain as major developers move to shelve high-rise towers and sell the sites.
Rising construction costs and razor-thin margins are forcing “borderline projects” to be abandoned.
However, one developer says it will press ahead with a $200m project in Surfers Paradise.
Melbourne-based developer Central Equity became the latest developer to exit the Coast’s property sector, announcing on Monday it was dropping plans for its $500m Pacific One tower and refunding the deposits of all buyers.
Last month Palm Beach’s sold-out $140m Alegria tower was dumped. Site preparation works had already begun.
Alegria’s owners, bus entrepreneur Joe Calabro and wife Roma, made the decision after building costs for the tower ballooned as much as $10m since buyers signed up. Its bank subsequently withdrew finance.
Ray White Surfers Paradise head Andrew Bell, who had been appointed to market Pacific One, said the Gold Coast market faced “unprecedented” pressure in the “unique” situation.
“These circumstances are unique and we have never experienced them which I expect will run into next year,” he said
“The pandemic and its building boom has caused a huge demand on building materials, while there is huge logistic challenges in moving materials, while increases to fuel prices have forced up the price of delivery.
“There will be another correction but it will take another year before it happens, though the shelving of projects will mean the demand for so much material will fall.”
Among the sites expected to go on the market in coming weeks is Southport’s Star of the Sea, long been owned by a Chinese developer who hoped to build a five-tower project.
Mr Bell said he expected a large number of proposed developments to be shelved, and the sites landbanked for a handful of years until market conditions improve.
While several projects have already been quietly parked, one major Surfers Paradise tower is going ahead.
Developer Sammut Group insists it is pushing ahead with its $200m Coast tower. Construction is expected to begin in August after building giant Multiplex was appointed.
The company, headed by Allen Sammut and backed by financier Alceon Group, will build the tower on Garfield Terrace. Demolition of the previous building continues.
“There is no doubt this is one of the most challenging times our industry has experienced, but we have a great relationship with our builder Multiplex, and we’re all invested in seeing this landmark project come to completion,” Mr Sammut told the Bulletin.
The tower will have 50 units and across its 35 levels, with an average sales price of $5.25m.
He said he expected the project would create 400 jobs during construction of the residential tower.
Multiplex regional director David Redding said the tower would take two years to build.
“We have worked closely with Sammut over the past few months to finalise a design and ready ourselves to commence construction,” he said.
‘Not viable’: $500M beachfront supertower dumped
Melbourne’s biggest high-rise developer has dumped plans to build a $500m supertower on the Surfers Paradise beachfront.
Central Equity citing supply chain issues and “turmoil” within the Queensland building industry for abandoning the 56-storey Pacific One tower.
In a statement late Monday afternoon, Central Equity said the decision had been made after discussions with builders and surveyors.
“The malaise facing builders, including staff shortages and supply chain disruption, had resulted in the unprecedented escalation of construction costs for developers, making Pacific One economically unviable,” the statement read.
“The company feels strongly that it is better to move proactively now, when faced with such economic turbulence.
“The decision was not a demand-side issue, and all deposits will be returned to buyers and prospective buyers.”
Construction of the tower had been expected to begin this year and Ray White had been appointed to market the project.
Central Equity plans to retain the site, on the corner of Frederick St and Garfield Terrace.
Ray White Surfers Paradise Group chairman Andrew Bell said Central Equity’s decision was a “rational and mature one”.
“Central Equity are being prudent in holding the site for future development,” he said.
It is the latest twist and turn in the history of the Pacific One site.
Central Equity, founded in 1987, bought the Garfield Terrace site in 2007 and spent $18m and 14 years amalgamating a further 19 titles. Its initial plans for a 17-storey mid-rise were scrubbed by the global financial crisis, only to try again in late 2016 by filing plans for The Luxe, a 47-storey tower.
By April 2018 the city’s real estate market had cooled and Central Equity put the site on the market, announcing it was abandoning its plans for the Gold Coast and refocusing on Melbourne.
It revisited the Pacific One project in mid-2021 once the Covid-fuelled market boom took off.
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