KEY POINTS:
When the Shears family sold their large, stylish Whangaparaoa house this year, they thought their timing was near-perfect.
Their new house was rising fast and they expected to leave their existing home on Monyash Rd, Manly, and move directly into the hilltop house being built at Kensington Park, Orewa, with hardly a heartbeat in between.
Reality is proving somewhat different. The Shears now appear to be caught up in the construction and property downturn which is slowly beginning to kill some of the country's largest residential projects. While the commercial building sector is still going gangbusters, it too is expected to soon feel the pinch.
Although the new house at the $450 million, 750-house Kensington Park is all but finished, Tony Shears is uncertain about exactly when he will be able to settle the deal to buy and move in. He hopes for good news from developer Patrick Fontein and knows of his high standing in the industry, particularly as head of the Property Council and Green Building Council.
"I'm taking a wait-and-see approach because I can't improve or change the situation in the short term," says Shears.
He has bought one of seven "SeaView" homes for about $700,000. The four-bedroom, 230sq m low-maintenance house was exactly what the Shears were after, having sold their four-bedroom, three-bathroom architecturally designed Monyash Rd place for $731,000. They were still at Manly last week but have various options when they have to leave, including staying with friends or family, if they find themselves temporarily homeless.
The couple were out cycling last year when they saw the development site and hatched the idea of shifting.
When the Shears' house featured in the Herald's midweek home section on May 7, Elizabeth Shears said Kensington Park was perfect because the new place would be big enough for the couple's four grown children.
Last week, Tony Shears talked more of minimising the inconvenience and his hopes that Kensington Park would still be a great success. He remains optimistic and has only signed up for a deposit bond, which means that if the new house is not finished, he does not expect to lose much. Settlement will only fall due once the place is completed and other terms and conditions are met, he says.
Shears describes the experience as being like a detour and remains confident the SeaView houses will be finished soon and he will shift in and enjoy his new house.
Kensington Park was one development that was never picked to hit trouble.
The tastefully designed, award-winning Orewa project has only a few streets that are finished, but was touted as being more of an upmarket experiment in urban design than a plain old suburban subdivision. Telecom laid fibre optic cables in trenches to give high-speed internet and phone services to the park's apartments and houses, which were also to get access to pools, gymnasiums and a village green.
But a few weeks ago contractors began packing up their gear, and work on the ambitious estate ground to a halt, even though Fontein said at the time that building work was continuing.
The job cost one large contractor dearly. Sunrise Earthmovers prepared the former Puriri Park camping ground for the high-density Kensington Park project. But on August 19, Marac Finance appointed Malcolm Innes-Jones and Steven Cammish of BDO Spicers as joint receivers of the earthmoving business as well as Sunrise Plant Hire and Sunrise Labour Hire.
Last Sunday, 30 to 40 contractors were reported to be claiming up to $6 million. One said he was at the site last week just after the receivers "arrived and introduced themselves to the staff". He said he was told they were "from the bank". The project was being funded by BNZ and Fidelity Group.
A lack of pre-sales and funding issues are thought to be at the heart of the problems at Kensington Park, which could see residents who have already moved in living in the middle of a partly developed building site for some time.
A little to the south, in Ponsonby, the setting is more urban but the story is much the same at Marlin Group's Soho Square project.
Plans for the project first surfaced three years ago, and the 1.3ha building site should now be full of fluoro-vested workers in hard hats and work boots. However the site lies largely silent, ground works partly finished but no buildings rising.
Hawkins Construction was expected to build the $250 million landmark project, which was to be a new suburban mini-hub, on the site of the old DYC vinegar factory. But Hawkins boss Chris Hunter says firmly that his firm has signed no contract.
Marlin hatched the controversial idea of building the urban village with shops, restaurants, cafes, cinemas and offices, as well as apartments - a plan which met strong local objection. But the site has sat still for months, despite Marlin's application for even more building coverage of the site, which is being considered after a public hearing this month.
As with Kensington Park, money is thought to be at the heart of issues at Soho Square. The project was funded by Strategic Finance, which is unable to pay 15,000 investors the interest and dividends on $325 million of funds they invested with the company.
Residential building's problems aren't confined to Auckland: in Queenstown, developer Dave Henderson's Five Mile project has gone belly-up. Hanover Finance put Five Mile into receivership in July, around the same time that Hanover froze repayments to 16,500 investors owed more than $500 million.
Five Mile, a $2 billion, 15-year project, was to house 10,000 people at Frankton, near Queenstown Airport. Henderson wanted to develop 3ha of offices and 4ha of accommodation for workers, students and budget travellers in a mixture of apartments and education facilities.
But another giant South Island project is still going: the first of a planned 7000 residents this week moved into the Pegasus development, north of Christchurch.
A sickness has stricken a few large development projects, and it could become contagious.
Many projects relied on a rising property market to help sell most of the proposed dwellings long before construction began - often before consent had even been granted.
They also relied on mezzanine financing: high-risk money, often secured by a second or third mortgage over a development producing no income. That finance came from a string of once-hungry but now-failed finance companies who drew money from thousands of typically elderly investors, ignorant of the high risks they were taking.
This is not just about the failures of Kensington Park, Soho Square and Five Mile. Other large projects expected to start by now remain largely dormant and have become publicity and marketing "black holes": Kitchener Group's Victoria Park Markets redevelopment and its Angus Steak House project on Albert St; Dae Ju's Elliott Tower apartment skyscraper on the old Royal Hotel site and its Auckland Star site redevelopment between Fort St and Shortland St; the ambitious 20-building Rhubarb Lane on the old Cook St council works depot; and the $500 million high-rise
development of leasehold Albany land by interests associated with Symphony Group, St Laurence, Valad and others. These are just some of the jobs planned this decade which are yet to begin. They now look likely to be shelved during this downturn.
Residential building - both apartments and new houses - peaked in 2004 and has fallen sharply since then, and the experts don't see the building sector recovering fast.
The latest report from global property and construction consultants Rider Levett Bucknall explains how construction has been squeezed by forces beyond its control, particularly financing and raw material costs.
"The lack of availability of funding has had more serious impacts on construction. The New Zealand economy is also continuing to operate at historically high interest rate levels but is not as sheltered as the Australian economy by resource production so the effect has been a marked general slowdown, although offset by inflationary effects arising from a tight labour market," RLB says in its international construction cost commentary.
It holds out no hope of an immediate improvement. The consultants say the country's building sector is marked by "a sense of uncertainty' created by the prospect of low projected GDP growth for the next three years, married up with the prospect of relatively high inflation.
"The tight credit market, high interest rates and rising fuel and food costs have flattened the housing and apartment market and created tension in other sectors," RLB says.
Rising raw material prices are hurting the sector, says the RLB survey.
Steel is a particular bugbear, and New Zealand users are reeling from a series of double-digit increases in prices since January. A year ago, a 6m length of 12mm reinforcing bar cost $9.40, says Paul Zuckerman, head of Fletcher Building's steel division. This month, the same length of reinforcing cost $15.80.
However, Rider Levett Bucknall's survey does have one small note of comfort: it puts the city near the lowest point of a trough, with a recovery ahead - but no date as to when that recovery might happen.
All these problems aren't just a worry for a few flash developers and their builders. The construction sector builds dwellings and other structures worth some $12 billion a year.
The Registered Master Builders Federation alone - which claims its 1800 members are responsible for $7.5 billion of that work - says they employ 15,000 contractors and subcontractors. And that's without counting all the other specialties affected - from architects, to paint shops, to plumbing supply salespeople.
The construction downturn is being felt on the sharemarket, too: Fletcher Building's annual result to June fell from $484 million the previous year to $467 million and chief executive Jonathan Ling offered a bearish forecast featuring possible factory closures, shift reductions and asset sales for a company that until recently was regarded as one of the market's predators.
Tony Alexander, the BNZ's chief economist, says the latest Statistics NZ figures on the building sector show a serious downturn in new house starts. "After adjusting for inflation and seasonal factors, residential construction work fell by a relatively strong 7.3 per cent in the June quarter after falling 6.7 per cent in the March quarter and 2.1 per cent in the December quarter. Activity was down almost 30 per cent from a year earlier," he says.
He predicts further weakness in residential building. Dwelling consent numbers will decline relatively strongly and property developers will continue to struggle to get finance, he believes.
The big downturn will soon lead to an undersupply, unlike the United States, where entire suburbs of houses now stand empty.
"The oversupply for the moment is the number of people who want someone else to own their place at the moment," he says, citing the halving in residential sales statistics.
By the time the boom kicks in again, we might have lost many of our builders and subcontractors to Australia, particularly its burgeoning mining business, says Alexander.
The good news is that he is forecasting a building upturn. The bad news is that he doesn't see it happening until 2010, "and it will be constrained by loss of tradespeople across the Ditch and it won't be a boom".
The prospect for big jobs like Kensington Park and Soho Square is not so great, although the projects will be finished, he believes.
"But they will aim for higher pre-sales, maybe lower-spec buildings, the numbers will need to be redone and developers will need larger amounts of capital."
Alexander hears of even worse situations for developers and builders unable to get finance or pre-sales, and sees construction activity getting much worse in the next year.
"These are pretty challenging times in the next 12 to 18 months because the financing model for some of these big projects is shattered, with the companies shrinking away."
Earlier this decade, Auckland's horizon was alive with tower cranes as developers such as Conrad's Robert Holden changed the face of the city. He developed apartment blocks around Nelson St and Hobson St, but said about a year ago that his business was no longer viable due to rising council costs. He has since turned his back on the city - a move welcomed by the many critics who found his blocks less than appealing.
Ian Mitchell, of property consultants DTZ, says the big buildings still rising in Auckland and Wellington are a product of earlier boom times, because construction is slow to respond to changing economies. Planning approval was granted some years ago for these big apartment and office blocks now being finished off, he says. But what interests him now is the sheer lack of new applications, particularly for apartments in Auckland.
Asked when he expects this to change, Mitchell says: "You tell me. Where is the world economy going to be in 2010 or 2011?"
Mitchell has studied apartment developments particularly closely and is a national expert in the field. But the downturn means there is not much call on his expertise in this area, a situation he does not see changing any time soon.
For big building bosses, the one bright light is infrastructure work and the state sector. The era of putting up risky multi-unit housing estates, or high-density, high-risk inner-city commercial developments which relied on strong preleasing terms and a fair sprinkling of easy money from debenture investors are long gone. Instead, the blokes who run building firms now eye up central and local government for their cashflow.
Hawkins' Hunter and Fletcher's Mark Binns are these days talking about power stations, motorway extensions and roads rather than flash hotels and apartment blocks.
Last year, Hawkins forecast a decline in building work so it established an infrastructure division which now has about $120 million of work on its order book.
One of Hawkins' successes has been winning the contract to build a sewerage system and pumping stations for the Mangawhai Eco Care project, north of Auckland.
Sewers, rising mains, grinder pump stations and the like may not be glamorous, but they pay the bills.
The Kawerau geothermal power plant for Mighty River Power is another major Hawkins Infrastructure job.
Last month, Fletcher's Ling said the business had a healthy $1.3 billion backlog of building work and the construction business had won several major projects in recent months, particularly in Auckland.
Fletcher's big jobs include redeveloping Eden Park's South Stand for the Rugby World Cup 2011; One Featherston, a 48,000sq m 15-level new Green Star-rated Wellington office building for Inland Revenue; several major hospital projects; a new Wellington building for the BNZ; and several motorway, bridge and rail projects, including the second Manukau Harbour crossing. Mainzeal Property & Construction, which puts up buildings worth about $400 million a year, has a "work in progress" list that includes a new multi-million brewing and bottling plant for Lion Nathan, Massey University's information service centre at Albany and structural repairs to Wynyard Wharf in the Tank Farm on Auckland's waterfront.
But while the big builders aren't exactly idle, don't expect the apartment blocks and mass housing projects to start sprouting again any time soon.
BUILDING BIG - Some of Auckland's largest construction jobs
Construction under way
* Deloitte Centre, 80 Queen St, by Brookfield Multiplex.
* Britomart Precinct, $1 billion refurbishment and restoration of 18 heritage buildings, by Cooper & Company.
* 21 Queen St, refurbishment, by Fletcher Construction for AMP NZ Office Trust. To be finished next year.
* Stamford Apartments, Albert St, by Fletcher Construction. Almost finished.
* Telecom headquarters, Victoria St, by Manson TCLM.
* Chatham Apartments, 51 units on Pitt St, by Hawkins Construction.
* Bianco, apartments, between Turner and Waverley Sts, above Queen St. Almost finished.
* Metlifecare Retirement Village, 241 apartments and care facility beside North Shore Hospital.
* Auckland Art Gallery extension.
* Lion Nathan brewery, new development in East Tamaki, won by Mainzeal.
* Eden Park upgrade, by Fletcher Construction.
* Soho Square, Ponsonby. Large mixed-use development by Marlin Group. Site almost idle.
Yet to start
* $500 million Albany high-rise plans for Don McKinnon Drive, by St Laurence, Symphony Group and others.
* Saffron apartments, 45-level tower, Albert St, by Sanctuary Group.
* Elliott St Tower, by Dae Ju of Korea.
* Victoria Park Market expansion, by Kitchener Group (David Henderson).
* Rhubarb Lane (aka Victoria Quarter), Cook St.
* Flat Bush, $1b town centre to house 40,000 people, by Nigel McKenna.
* 20 Shortland St, apartment and offices, by Dae Ju of South Korea.
RESIDENTIAL BUILDING
Sharp fall since the 2004 peak
Building consents issued for houses (excluding apartments - July year):
2003 - 23,401
2004 - 26,612
2005 - 22,220
2006 - 22,282
2007 - 23,431
2008 - 20,203
Building consents issued for apartments (July year):
2003 - 5556
2004 - 6372
2005 - 4875
2006 - 3421
2007 - 3122
2008 - 2287
NON-RESIDENTIAL BUILDING*
Picking up the slack
Value of non-residential building consents issued (year to July):
2003 - $2.7 billion
2004 - $3.1 billion
2005 - $3.9 billion
2006 - $4.1 billion
2007 - $4.1 billion
2008 - $4.3 billion
* Commercial, industrial, retail, hotels, schools etcSource: Statistics NZ
