As reported by the The Australian Financial Review, some $57m of deposits sit in the project solicitors' trust account, presumably securing $570m of presales, on contracts with 10-year sunset clauses.
On smaller-scale projects, you're more likely to see a 4-5 year sunset date, and on land subdivisions, usually just 24 months.
💵Based on the reporting, these apartments look to have been sold around $18-20k/m2 on average. I expect a project like this would need to command closer to $30k/m2 to be feasible today.
We all know about the incredible construction cost escalation post-COVID, but the rate of inflation had slowed by late 2022 into 2024 – precisely when these off-the-plan contracts were signed by the project. It's unclear where the disconnect was.
Whilst building costs have continued to inflate, it was at a more predictable rate for the last few years (until the Iran war threw all that up in the air).
As I say in the article:
“I’m surprised they would have undersold that much at that time,” said Maxwell Shifman, a land developer and former Victorian president of the UDIA National.
“We knew by then what had happened to costs. I wonder if they were working off old cost estimates in doing the feasibility.”
But given the lag in the Melbourne apartment market, it's not like those apartments could have been sold at the necessary prices.
It also appears that the Victorian Government didn't come to the party and allow project changes to reduce costs. It certainly doesn't care about #feasibility or risk on developments, or have any sympathy for an industry that is struggling.
🤔It's an audacious project, and hopefully, there is a way to resurrect it someday. But the deposits should be released sooner rather than later, in any case.