A Victorian developer has pulled the pin on a luxury Hobart apartment complex, citing a lengthy approval timeline and increased construction costs.

Moda’s St David project at 9 Sandy Bay Rd is the latest Tasmanian project to be cancelled, put off or run significantly over budget amid post-pandemic inflationary pressures and interest rate rises.

The off the plan apartments broke real estate records in 2021 when the penthouse sold for $8m.

However since then the site opposite St David’s Park has since sat idle, with Moda managing director Ed Farquharson revealing the project was unlikely to proceed.

“We regretfully confirm that our exciting St David development is on hold indefinitely. We are in the process of a staged refurbishment of the current 18 units on the property and will look to re-lease and hold the asset long term,” he said.

Mr Farquharson said in the case of St David, an “extraordinarily long” approval timeline with the Hobart City Council was a significant factor in the project’s demise.

“St David received a planning permit at the City of Hobart Council meeting in May 2020, yet did not receive ‘endorsed’ plans from Council until August 2022 - some 26 months later. By comparison, in other states such as Victoria, statutory certainty is provided by the knowledge that an endorsement process will take, on average, two months,” he said.

“The planning process, which took more than three years from application to endorsement, meant that the development was exposed to exponential escalation in construction costs far in excess of increases in property values, which for the time being at least has forced a hold on the development.”

“We have extended the permit for another three years should there be a drastic chance in market conditions.”

Hobart Lord Mayor Anna Reynolds said there were a large number of projects with planning approval in the city where construction had not commenced.

Ms Reynolds estimated the approved yet un-built projects amounted to around 500 dwellings.

“These ones haven’t gotten to the building application state which means they are kind of just sitting there in abeyance,” she said.

“Anecdotally it appears some of them are having trouble because of sourcing a building contract they think is within a realistic cost envelope, challenges of interest rates and other things. This is something that the whole country is facing, it’s not really a Hobart specific but absolutely it affects us as well.”

PRE-PANDEMIC PLANS IN DISARRAY

A growing list of major Tasmanian projects are being cancelled, delayed, or significantly over budget as the post-pandemic cost explosion bites.

In terms of private investment, Moda’s luxury Hobart apartment complex and the Tasman Private Hospital in New Town Rd have both been confirmed as cancelled in recent weeks.

In the public sector, multiple health, education and community projects have blown their budgets this year, some by more that 100 per cent.

The cost overruns have raised concerns about the state’s ability to deliver major projects on budget, including the $715m proposed Hobart stadium.

Property Council of Australia Tasmania president Heather Mason said cost pressures were impacting the viability of privately funded projects.

“In some instances, in order to proceed projects that were feasible at the time of approval are now having to be modified and even then returns are marginal, impacting the ability to obtain development funding,” Ms Mason said.

“The time to redesign and obtain new approvals results in further delays to the delivery of new housing stock. Residential projects with any sort of density are not feasible at the moment, even with very low or nil land values applied.”

Ms Mason said impacted projects were those initially contracted under different circumstances pre-pandemic.

“Like many other states, data shows that Tasmania has experienced sharp increases in construction escalation over the last two years. This has been due to a perfect storm of factors, including sharp changes in material prices, labour costs, and other significant internal and external factors such as freight and shipping.”

University of Tasmania senior economics lecturer Maria Yanotti said while construction costs were high, they were unlikely to keep rising.

“Through the pandemic we have seen huge increases in commodity prices, shipping, freight, logistics, delays, we’ve also had lockdowns are restrictions that meant people weren’t available, that meant labour shortages and skills shortages,” Dr Yanotti said.

“Now the macroeconomic environment has changed a lot...interest rates are higher and there is a lot of effort for slowing down the economy, which is working and we are now seeing a slowdown in the rise of those prices.

“We don’t think material costs and building costs are going to keep increasing, so the peak has passed.”

Dr Yanotti said while private developers could cancel projects for commercial reasons, public infrastructure commitments were fulfilling a need and therefore less likely to be reversed.

“When government funding is committed it’s a bit harder to go backwards,” she said.

“At the end of the day those extra costs are paid by citizens. It is money that could have gone to other services.”

Treasurer and Infrastructure Minister Michael Ferguson said the state government had intentionally ramped up infrastructure spending to stimulate the economy during the pandemic.

“Our strong economic performance and prudent budget management means our record delivery of the infrastructure Tasmania needs will continue to be rolled out. With global conditions creating cost pressures careful and responsible budget management is vital,” Mr Ferguson said.

While some projects have blown their budgets, the state government highlighted record state-Commonwealth infrastructure spending that was on track.

This included the $786m Bridgewater bridge, $565m upgrades to the Midland Hwy, the $350m South-East Traffic solution between Hobart and Sorell and $280m works to the Bass Hwy.

LIST OF TASMANIAN PROJECTS CANCELLED, ON HOLD, OVER BUDGET

Tasman Private Hospital, New Town – CANCELLED

Private hospital developer Nexus Hospitals announced last week it would not proceed with its long-planned Tasman Private Hospital in New Town Rd. Nexus cited a doubling in cost to more than $120m and long approval timelines.

Moda apartments 9 Sandy Bay Rd – INDEFINITELY ON HOLD

Victorian luxury apartment developer Moda have confirmed their St David complex in Sandy Bay Rd is unlikely to proceed.

The company has cited the length of time it took to obtain endorsed plans from Council, in addition to inflated construction costs.

Glenorchy Ambulance Station – COST DOUBLED

Design revisions, difficulty finding a site and the pandemic have been blamed for a delayed and more expensive Glenorchy ambulance superstation.

When put out to tender earlier this year the project cost had doubled to around $12.5m.

Brighton High School – COST BLOWOUT

When work began at the new high school site in February, the government revealed the project was set to cost $74m.

The project was costed at $30 million in 2018 and $50 million in 2021.

Education minister Roger Jaensch said the government was determined to deliver the much-needed new school despite a “challenging market” for capital works.

Hobart Showgrounds redevelopment – COST BLOWOUT

The major redevelopment currently underway at the Hobart Showground was initially costed at around $25m, but was recently revealed to be over budget by around $13m.

A 450-dwelling housing development at the site, which would include 150 public housing properties, has been put on hold as a result.

Tafe plumbing centre in Warrane – COST BLOWOUT

The new TasTAFE Water and Energy Trades Centre of Excellence at Clarence Campus was originally costed at $14m in 2018. It was tendered for $21m in 2021 and ended up costing $27m.

University of Tasmania former forestry building redevelopment – COST BLOWOUT

Design changes and the increased cost of materials have caused the University of Tasmania development in the Hobart CBD to blow out by $45 million.

The university began work earlier this year on the new College of Business and Economics, the Law School and administrative offices in Melville St. The $86m project budget has grown to $131m.

Northern Suburbs Community Recreation Hub – COST ALMOST TRIPLED

The Northern Suburbs Community Hub at Mowbray, funded by all levels of government as part of the 2017 Launceston City Deal, was forecast in early 2021 to cost $15.6m.

However the state budget revealed the project would now be delivered at a cost of $43.6m.

The increased cost was attributed to “the scope of the project changing over time”.

Marinus Link – UNDER A CLOUD

Earlier this month the state government, for the first time, signalled its willingness to walk away from Marinus Link if rising costs make it too costly for the state budget to bear.

The second Bass Strait cable was supposed to cost around $3.1bn, but the government has cited a “material and significant cost increase”.

It’s understood the cost is now approaching $5.5bn.

blair.richards@news.com.au