Rising construction costs are being blamed for adding at least $1.8 million to the price of a Cedar Woods’ apartment project in Rockingham.
Rising construction costs are being blamed for adding at least $1.8 million to the price of a Cedar Woods’ apartment project in Rockingham.
Cedar Woods has been forced to go back to off-the-plan buyers in its Nautilus Apartments project, asking for more money to cover increasing construction costs.
The construction contract is understood to be for $19.75 million. Sources close to the deal were split on how much this contract differed from original estimates for the project, however.
There were suggestions the figure struck with construction firm Pindan Constructions was a rise of somewhere between 10 per cent and almost 30 per cent above costs expected at the start of the year.
Cedar Woods has contacted purchasers offering the option of rescinding their contracts and having their deposits returned, or increasing their purchase price by about 6 per cent.
As of September 24, the time a letter to investors was dated, 57 of the 62 apartments had been pre-sold for between $279,000 and $850,000.
The letter explained to purchasers that: “Following exhaustive negotiations with the lowest four tenderers, we are unable to build the project as designed and specified for a price which makes the project feasible on the basis of the selling prices achieved to date”.
Cedar Woods managing director Paul Sadlier said construction costs had gone up between 10 and 20 per cent since the beginning of the year and that the project was unable to be completed for the costs originally estimated.
Mr Sadlier added that not all of the construction price increase had been passed on to purchasers, and that Cedar Woods was not making any more of a profit.
WA Business News has confirmed from a purchaser that they had been asked for a 6 per cent increase on their original purchase price.
Mr Sadlier said Pindan was the lowest tenderer and confirmed that a contract had recently been entered into for the construction of Nautilus.
“It is interesting to note that only four of the 10 builders contacted by Cedar Woods were prepared to tender for this project,” he said.
Sources said the contract between Pindan and Cedar Woods was valued at $19.75 million.
Pindan director of business development Scott Davidson said Pindan had signed a contract to complete construction of Nautilus and that the contract price was value engineered to try and fix cost escalations incurred since the start of the year.
“There are three main issues associated with costs being blown out – cost of materials, price of labour and availability of labour,” he said.
Construction was due to start in the middle of year but will now commence in December.
Colliers International manager of research, David Cresp, said huge jumps in construction costs were making life difficult for developers, and he was aware of other instances where developers asked purchasers for increase in their purchase price.
“The situation in the market means developers need to get pre-sales before the bank will loan them money, and a construction contract can’t be entered into unless that money is there,” Mr Cresp said. “A certain amount of cost increase is usually allowed for, but not 10 to 15 per cent.”
