Keen first-home buyers in Auckland are being warned to be careful when putting a deposit on planned property developments, after 35 housing projects have failed in the last year.
The most recent case is the cancellation of the multimillion-dollar Flo Apartments project in Avondale. The development fell through due to funding issues.
"The simple fact is that when you're purchasing a piece of real estate, particularly off the plans, you need to be really careful that you do due diligence on who the developers are that are behind it," Real Estate Institute (REINZ) director Brian Thompson told RadioLIVE. The Avondale apartment block, due to be built on Special Housing Area land, had 91 units, most of which home buyers had paid a deposit for. Buyers have been reimbursed, but are left without a promised home, and the future development of the site is unknown.
Colliers International confirmed 35 Auckland residential developments have been cancelled in the past year.
Reasons for the failure of the developments include rising construction costs since the time of land purchase and funding restrictions enforced by banks.
"The fact of the matter is when you sign up to purchase an apartment or a townhouse off plans you're signing a contract that a solicitor will have checked, and it will in almost every situation have a sunset clause in it that if the developer does not achieve a certain level of sales, or be able to financially construct the project, they have the opportunity to withdraw from that contract," Mr Thompson says.
The 35 cancellations show there's always a risk in property development, Prime Minister John Key says.
"I wouldn't take too much out of it. What it shows you is that there's always a risk when it comes to property development."
He said consenting for property developments was strong in Auckland, and he still believes apartments are "a credible alternative" for people to invest in.
The Greens say many first-home buyers have been left in the lurch and the Government should do something to help them.
"What are these people supposed to do when the apartment projects they've bought into collapse?" says co-leader Metiria Turei.
"If rising construction costs are the issue, the Government should be looking at what it can do to make sure apartment builders have access to enough finance to cover construction costs."