‘Stressed market’: Developer applies to postpone $320k in contributions

The application to postpone $320,000 in development contributions could be seen as a sign of a stressed market. Photo / Mark Mitchell

The developer of a nine-storey apartment building in Wellington can no longer afford to pay $320,000 in development contributions after significant cost overruns during the build.

The situation has been described as a sign of a stressed market and if conditions worsen, more developers may find themselves in similar financial hardship.

The Wellington City Council will consider postponing the payment at a committee meeting next week.

The application is for the Habitat Apartments development on 47 Vivian St, which includes 85 residential units and 61sq m of commercial space on the ground floor.

The request was made by Alex Khera, who the council said was the development’s representative. Khera said he was not in a position to comment further while the application was before the council.

Development contributions are paid to the council and cover the effect new developments have on services and infrastructure, such as wastewater.

Councillors can postpone such payments at their discretion but officials have recommended declining Khera’s request because it would set a dangerous precedent due to the request’s scale.

Council committee agenda documents reveal the apartment build went on for 13 months longer than expected because of building material and tradie shortages, resulting in a significant overrun of costs.

The plan is to rent the apartments, so the applicant will not be receiving any significant money from the sale of them, documents said.

“The applicant has advised that they can no longer afford to pay the development contributions, due to higher-than-expected building costs.”

Khera believed he would be able to pay off $10,000 a month. The development also has an outstanding debt of $34,000 with the council for processing the building consent.

The exact total amount owing is $353,356 including GST. It will take three years to pay off the debt under Khera’s proposal.

The council would have to take on more debt if the postponement was granted, which would put pressure on an already constrained balance sheet.

The interest on that debt would affect rates, officials said. Mayor Tory Whanau has recently announced this year’s planned rates increase was 12.8 per cent, which she called a bitter pill to swallow for households struggling with the cost of living crisis but necessary to tackle years of underinvestment in key infrastructure.

The council’s chief planning officer Liam Hodgetts said the application to postpone development contributions could be seen as a sign of a stressed market.

“We should expect to see more of these applications as the inflationary pressures in turn put pressure on developers.”

Hodgetts said it was an extraordinary amount of money compared to other applications.

Since 2020, two other such applications have been made due to financial hardship. Both were granted but the largest of the two applications was only $5500.

The council is reviewing its District Plan, with a panel of independent commissioners scheduled to preside over formal hearings this month.

It’s a major shake-up of planning rules enabling an apartment boom.

Hodgetts said the long-term view of today’s economic climate is that it’s part of the ebb and flow of the market.

“There will be times where the market will tighten and inflationary pressures will slow down development but also as the market comes out of this tight fiscal environment, you’ll probably see more activity.”

Regulatory processes committee chairwoman councillor Sarah Free said she did not want to comment on the matter in detail before councillors discussed it at their meeting next Thursday.