Developers lack ‘firepower’
While developers struggle to get large apartment building projects off the ground, foreign funded investment groups are filling the gap in the Auckland market.
A recently announced $300 million apartment building, The Pacifica, is expected to be built in Auckland by 2020, and another large apartment tower is planned for Customs St East.
Both will be funded by international property developer Hengyi and Auckland-based developer Shundi Customs.
Shanghai Shenshun Investment Co of Shanghai owns 40 per cent of Shundi shares.
Projects that rely on local bank financing, such as the Avalon Flo and St James apartments, have been scrapped or halted due to a tightening of bank financing and rising construction cost, despite being largely pre-sold.
Australian regulations require banks to have more reserves on hand to support them during tough economic times.
To help meet the requirement, Australian-owned New Zealand banks have been required to send funds across the Tasman, leaving them with less money to lend here.
Realinz Holdings property developer Steve Bielby said the capital restrictions played a significant part in why his $250m St James apartment tower project on Queen St was deferred, and may not happen at all.
He said he could name 15 other projects with local developers that were also having trouble financing projects from banks.
‘‘As construction prices are escalating at 15 per cent a year it would be logical that bank funding was increasing at 15 per cent a year, just to keep pace with what we were already building, but it’s not,’’ Bielby said.
Most local developers hit a funding ceiling after $130m projects, he said. ‘‘That’s why you see a whole lot of 18-storey apartment buildings around town.’’
CBRE’s national director of residential projects, Gavin Lloyd, said there was incredible demand for buildings like The Pacifica, but local developers didn’t have the ‘‘firepower’’ to meet it.
‘‘Local developers just don’t have enough equity to put in and the banks get a bit nervous and they pull funding, even though a couple of the developments have been 100 per cent sold out.’’
Lloyd said he has seen an influx of international developers like Hengyi because they have expertise in building high towers, and the financial grunt that local developers lack.
‘‘[Hengyi] owns substantial shareholdings of four or five banks, [and] interests in Canada and America; they’ve got e-commerce businesses around the globe. Real estate is just one small part of what they do,’’ Lloyd said.
Bielby said it was great to see bigger institutions like Hengyi coming to Auckland, but more needed to be done to get Aucklanders into apartments quickly.
‘‘You’re not going to motivate them to live in shoeboxes … We’ve got to convince people out of the quarter-acre dream and get them more central,’’ he said.
‘‘House prices won’t go down and that’s solely because there’s not a supply coming on tap.’’