More hurdles on horizon for Diploma

An embattled Perth-based developer has capped off a turbulent 2016 by selling one of its most prominent projects.

Diploma Group has offloaded another of its assets, selling a stalled apartments development site in Scarborough.

The nine-level, $35 million project known as Horizon on West Coast Highway, was originally scheduled for a construction start in the second quarter of this year, but will now be relaunched by the buyer, GM Property Group.

ASX-listed Diploma told the market in February the project was on track to be completed in the 2017 financial year, with 60 per cent of the apartments having been sold.

However, the following months produced no action on the site, culminating in Horizon being sold to GMPG for an undisclosed amount.

GMPG also recently completed a six-storey, 26-unit project in South Perth.

Sales of Horizon apartments kept ticking over despite the project appearing to be stalled, even after its expected start date passed, according to managing director of selling agency Crème Real Estate, Cindy Lee.

“I’ve got about six buyers sitting on the fence at the moment because they wanted to know who the developer was,” Ms Lee told Business News.

“Because when you come down here and see that big sign that says ‘construction commencing Q2 2015’, people just wonder what’s happening.

“The fact that we’re still writing contracts and that sign is up there, and nothing is happening on site, that shows there is strong interest in the development.”

The vacant Horizon site will be rebranded. Photo: Attila Csaszar

GMPG has appointed local contractor Jaxon to build Horizon, with the remaining apartments yet to be sold in the development, which will be relaunched for sale next week.

Ms Lee said she expected a rebranding of the site and a construction start would stoke significant interest from buyers, particularly those holding off because of doubts over the project’s future.

“I’m going back to developers saying they have got to put more equity into developments so they can get funding on presales,” she said.

“As soon as it is under construction, and you can say to a buyer ‘you will be in there on this date’, it is a completely different ballgame.”

The sale of the site is the latest development in an eventful year for Diploma Group, which began 2016 in a positive manner, reporting a $600,000 profit for the first six months of the 2015-16 financial year.

Since then, however, the development and construction company has run into repeated issues, the latest being that its Diploma Construction subsidiary lodged a loss of $32.5 million in 2015-16, driven by a $20 million one-off impairment, the nature of which the company is yet to reveal.

Diploma has also been subject to repeated claims this year by subcontractors who say they aren’t getting paid on construction jobs, while it is also embroiled in a dispute with TRG Properties over a residential project in Perry Lakes.

Earlier this year, managing director Nick Di Latte strongly denied claims by subcontractors that Diploma was in trading difficulties, saying the completion of settlements of units at its Capri apartments project in Rockingham and the $42 million sale of its Quest Adelaide Terrace project had put the company in a strong financial position.

Diploma shares have been in a voluntary suspension since August, as it has not yet finalised its full-year accounts for FY2016, accounts which are also facing scrutiny by forensic accountants, part of an investigation led by the Building Commission.

Last week, when flagging the $32.5 million loss for its construction arm, Diploma said it expected to finalise its financial statements by December 31.

The sale of the Horizon site, particularly with sufficient pre-sales in place for a construction start, places considerable doubt over Diploma’s intentions for its other development projects.

In a company update to the ASX in May, Diploma said it was shifting its focus to winning more third-party construction work in lieu of internally generated developments.

According to its half-year results presentation, Diploma had two internal development jobs on its books.

One of those, a $160 million, two-stage hotel and apartments development at the old Chemlabs site in East Perth, won development approval in September.

The other is a $15 million, 24-apartment project in Subiaco, known as Elan.

Mr Di Latte had not responded to inquiries by Business News at time of publication.