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17-06-2015, 11:26 PM
Foreign developers rethink plans as costs, red tape bite
FLORENCE CHONG THE AUSTRALIAN JUNE 18, 2015 12:00AM
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Supplied Editorial Bouverie Hero
The old CUB site sold by Chip Eng Seng. Source: Supplied
Tough planning and building codes, together with rising costs, could dash the hopes of foreign developers hoping to establish a foothold in the local market.
Some foreign developers, who have stumped up big sums for sites over the past two years, are believed to be starting to reassess their viability due to regulatory requirements and other issues.
A key executive of one Sydney-based residential development company says market talk is that four Sydney sites are due to come back to market soon. The executive was not prepared to go into detail.
Only one recently purchased foreign-owned development site — the former CUB complex in Swanston Street, on the fringe of Melbourne’s central business district — has been resold.
The sale in March this year delivered a capital gain of $33 million for Singapore-based Chip Eng Seng, so it made commercial sense for the developer to book a profit when it could, says an industry observer.
Chip Eng Seng is currently building a 71-storey structure, called Tower Melbourne, in Queen Street. The company bought the CUB site in 2013 for $32m and sold it for $65m after gaining approval from the former Victorian government for a 72-storey residential tower.
Industry observers say Chip Seng Eng’s decision appears at odds with the firm’s stated ambition to expand its development operations in Australia, which it targets as its key market alongside Singapore.
But legal action over protection work on property adjoining for the Tower Melbourne development in Queen Street might have dampened its enthusiasm for developing in Australia.
Attempts to reach executives of Chip Eng Seng both in Singapore and Melbourne for comment were unsuccessful. Chip Eng Seng is one of Singapore’s largest and most successful companies, and has been developing in Singapore for several decades.
The chairman of another Singapore-owned company in Australia says that large established Asian groups such as Far East Organisation, Malaysia’s UEM Sunrise or SP Setia or China’s Greenland have the wherewithal to deal with unexpected complications.
Their pockets are deep enough to absorb cost shocks, but he questions the ability of some new foreign developers without a large organisation behind them to withstand unexpected financial risks.
Crucially, he and another veteran Asian developer agree that it is easy to have the mistaken belief that building codes and practices in Australia will be the same as in Singapore or elsewhere in Asia.
Established Asian-based developers are fascinated by grand plans for several mega-towers in Melbourne by two Singapore companies, owned by brothers whose family wealth was born out of jewellery business. If all the projects proceed as planned, they would significantly alter Melbourne’s skyline with their spectacular and futuristic towers.
Separately, Koh Wee Meng, and his younger brother Wee Seng, who run Fragrance Group and Aspial Corporation respectively, propose residential towers of heights and densities unprecedented in Australia.
Aspial Corporation intends setting an Australian record with Australia 108: a 100-storey tower housing more than 1105 apartments in Melbourne. Aspial also plans two other projects: an 82-storey building with 750 apartments at A’Beckett Street and a 634-unit project in King Street. It is unclear whether Aspial will proceed with these before completion of Australia 108.
The older billionaire brother, Wee Meng, has scaled back his original vision for a 90-storey tower on the site of the Savoy Tavern at the corner of Spencer and Bourke streets to 68 storeys — and 400 fewer apartments.
Fragrance is pressing ahead with 555 Collins Street, where it plans a 91-storey tower. It owns other sites in the city.
In a rare interview last year for Forbes Asia, Wee Meng said that, since entering Australia in 2014, he has spent $US156m on sites, all paid for in cash by his Fragrance Group, which is 85 per cent owned by himself and his wife.
Australian developers say offshore developers will have to get used to Australia’s business model, which is very different to Singapore. In Asia and Singapore, developers collect progress payments at various milestones during construction, with the remaining 15 per cent on completion. In other words, buyers largely fund the development and, more importantly, this funding derisks the project. In Australia, the developer collects a 10 per cent deposit, which is held in a trust account until the project is completed.
The apartment boom and weaker dollar have combined to lift labour and component costs. Depending on the state, constructions costs have risen sharply in recent months and are poised to get higher as more projects get under way.
Australian high-rise residential developers tend to keep their towers to less than 40 storeys because the construction cost is relatively cheaper and the project will be completed more quickly.
Building costs go up for projects higher than 30-40 floors. The higher you go, the less efficient it is as materials have to be hoisted to the upper floors, says Ashley Williams, chief executive of Melbourne’s Evolve Development.
Another developer, Rod Hills, chief executive of Property Development Corporation, says the number of building regulations and the complexity of planning in Australia come as a shock to some offshore developers, used to the efficiency of their home markets. James Sialepsis, Meriton’s national sales director, says: “Regulations and red-tape are hard enough for a company like Meriton, and we have an in-house team of engineers and planners.”
FLORENCE CHONG THE AUSTRALIAN JUNE 18, 2015 12:00AM
Save for later
Supplied Editorial Bouverie Hero
The old CUB site sold by Chip Eng Seng. Source: Supplied
Tough planning and building codes, together with rising costs, could dash the hopes of foreign developers hoping to establish a foothold in the local market.
Some foreign developers, who have stumped up big sums for sites over the past two years, are believed to be starting to reassess their viability due to regulatory requirements and other issues.
A key executive of one Sydney-based residential development company says market talk is that four Sydney sites are due to come back to market soon. The executive was not prepared to go into detail.
Only one recently purchased foreign-owned development site — the former CUB complex in Swanston Street, on the fringe of Melbourne’s central business district — has been resold.
The sale in March this year delivered a capital gain of $33 million for Singapore-based Chip Eng Seng, so it made commercial sense for the developer to book a profit when it could, says an industry observer.
Chip Eng Seng is currently building a 71-storey structure, called Tower Melbourne, in Queen Street. The company bought the CUB site in 2013 for $32m and sold it for $65m after gaining approval from the former Victorian government for a 72-storey residential tower.
Industry observers say Chip Seng Eng’s decision appears at odds with the firm’s stated ambition to expand its development operations in Australia, which it targets as its key market alongside Singapore.
But legal action over protection work on property adjoining for the Tower Melbourne development in Queen Street might have dampened its enthusiasm for developing in Australia.
Attempts to reach executives of Chip Eng Seng both in Singapore and Melbourne for comment were unsuccessful. Chip Eng Seng is one of Singapore’s largest and most successful companies, and has been developing in Singapore for several decades.
The chairman of another Singapore-owned company in Australia says that large established Asian groups such as Far East Organisation, Malaysia’s UEM Sunrise or SP Setia or China’s Greenland have the wherewithal to deal with unexpected complications.
Their pockets are deep enough to absorb cost shocks, but he questions the ability of some new foreign developers without a large organisation behind them to withstand unexpected financial risks.
Crucially, he and another veteran Asian developer agree that it is easy to have the mistaken belief that building codes and practices in Australia will be the same as in Singapore or elsewhere in Asia.
Established Asian-based developers are fascinated by grand plans for several mega-towers in Melbourne by two Singapore companies, owned by brothers whose family wealth was born out of jewellery business. If all the projects proceed as planned, they would significantly alter Melbourne’s skyline with their spectacular and futuristic towers.
Separately, Koh Wee Meng, and his younger brother Wee Seng, who run Fragrance Group and Aspial Corporation respectively, propose residential towers of heights and densities unprecedented in Australia.
Aspial Corporation intends setting an Australian record with Australia 108: a 100-storey tower housing more than 1105 apartments in Melbourne. Aspial also plans two other projects: an 82-storey building with 750 apartments at A’Beckett Street and a 634-unit project in King Street. It is unclear whether Aspial will proceed with these before completion of Australia 108.
The older billionaire brother, Wee Meng, has scaled back his original vision for a 90-storey tower on the site of the Savoy Tavern at the corner of Spencer and Bourke streets to 68 storeys — and 400 fewer apartments.
Fragrance is pressing ahead with 555 Collins Street, where it plans a 91-storey tower. It owns other sites in the city.
In a rare interview last year for Forbes Asia, Wee Meng said that, since entering Australia in 2014, he has spent $US156m on sites, all paid for in cash by his Fragrance Group, which is 85 per cent owned by himself and his wife.
Australian developers say offshore developers will have to get used to Australia’s business model, which is very different to Singapore. In Asia and Singapore, developers collect progress payments at various milestones during construction, with the remaining 15 per cent on completion. In other words, buyers largely fund the development and, more importantly, this funding derisks the project. In Australia, the developer collects a 10 per cent deposit, which is held in a trust account until the project is completed.
The apartment boom and weaker dollar have combined to lift labour and component costs. Depending on the state, constructions costs have risen sharply in recent months and are poised to get higher as more projects get under way.
Australian high-rise residential developers tend to keep their towers to less than 40 storeys because the construction cost is relatively cheaper and the project will be completed more quickly.
Building costs go up for projects higher than 30-40 floors. The higher you go, the less efficient it is as materials have to be hoisted to the upper floors, says Ashley Williams, chief executive of Melbourne’s Evolve Development.
Another developer, Rod Hills, chief executive of Property Development Corporation, says the number of building regulations and the complexity of planning in Australia come as a shock to some offshore developers, used to the efficiency of their home markets. James Sialepsis, Meriton’s national sales director, says: “Regulations and red-tape are hard enough for a company like Meriton, and we have an in-house team of engineers and planners.”