Mirvac joins the capitulators

While delivering the news of a 22.3% fall in net profit yesterday Mirvac, one of Australia’s largest property development groups, stated that real estate price increases are no longer part of their business model.

Residential property prices are expected to remain flat with little growth in the foreseeable future, one of Australia’s biggest property developers, Mirvac, says.

Mirvac managing Director Nick Collishaw says interest in the group’s new developments remains strong, but it has not factored increases in house prices into its feasibility and contingency plans.

“Certainly, flat prices are what we are anticipating and what we are working in to our feasibility. So, as we look forward, we’re not expecting prices to accelerate,” Mr Collishaw told analysts in a briefing after the release of the group’s full year results today .

Asked about margins on Mirvac’s apartment developments, Mr Collishaw said flat price growth was an “interesting concept”.

Mirvac has now lodged development applications with the City of Sydney for its Harold Park development in inner Sydney.

About 2000 people have already registered interest in buying into the 1200 lot scheme.

“In an environment where we’re not allowing for price escalation, the contingency basically covers our position in terms of how we see cost escalation,” Mr Collishaw said in relation to Harold Park.

Mirvac is fast tracking many of its development projects and making new acquisitions after posting an increase in operating profit of 30.2 per cent to $358.5 million in the full year to June 30.

But the group said net profit fell 22.3 per cent to $182.3.

“Interesting concept” is right. It will certainly be “interesting” to watch Mirvac and other developers over the coming year to see how their business actually cope with flat and falling prices and the subdued investor environment that will come with it. This is certainly not an environment that these businesses would be used to after over a decade of near-unbroken credit expansion.

Coincidentally the level of capital appreciation of Mirvac built properties is about to be publicly tested by one of their own.

THE top legal eagle at the developer Mirvac, Sonya Harris, has put her apartment in the troubled Towns Place development at Walsh Bay on the market. The three-bedder in the 65-unit block – built by Mirvac and its joint venture partner Transfield – looks to be a bargain.

The owner of a car park underneath the apartments, Greg Hawes, has said Towns Place could come down like a ”house of cards” within a decade because of seawater damage in two car parks.

He has produced three expert reports critical of the car parks. One states the ”strength of the [concrete] slabs will be compromised” if repairs are not done urgently. The bill has been estimated at more than $6 million.

Ms Harris, 42, the general counsel and company secretary at Mirvac Limited, listed her apartment on August 3 for $1.85 million. It is one of four at Towns Place to go on sale in the past eight weeks. Two other three-bedders with similar views are $200,000 more expensive. Another has a price tag of $2.05 million. There is also a one-bedroom apartment for sale at $1.39 million.

There have been just two sales in the past year.


Harris’s agent, Richard Shalhoub of McGrath Estate Agents, agreed the apartment was ”priced really well – she’s keen to move on”. He said: ”It’s a great price and a great apartment, so I’m sure it will move.”

RP Data shows Ms Harris bought the apartment for $1,616,000 in July 2006, soon after the building was completed.

The latest registered sale in that complex is also a 3 bedroom apartment with a sale price of $1.6 million on the 21st of May. This was however $50,000 less than the prior sale of the same property in July 2007. This suggests that Ms Harris is going to struggle with her asking price.

That however is far from the most disappointing news from Mirvac’s legal department. This week their Queensland division lost a test case in the court of appeal against a disgruntled purchaser who was able to remove herself from a contract on a flood exposed property leaving Mirvac in the lurch.

It was seen as a test case over whether a buyer could void a contract following the floods. Maris Anne Dunworth had been battling with the unit complex builders Mirvac Queensland Pty Limited for several years.

However, matters came to a head when the lower ground unit was inundated by floodwaters on January 13.

In July 2007, Mrs Dunworth, the wife of former Wallaby footballer David Dunworth, agreed to buy the residential apartment in a proposed building at Tennyson, in Brisbane’s south, for $2.155 million.

Before any completion of the contract, the by-then completed building, was flooded and it was necessary to remove the lower level of gyprock sheeting of the walls and to disconnect the electrical wiring and appliances. Mirvac required four months to complete restoration work, which it offered to carry out on January 24.

However, Mrs Dunworth rejected the offer to restore the unit, and on January 28 purported to rescind the contract on the grounds that the unit had been rendered unfit for occupation.

The matter went to the Supreme Court in February where a judge found against Mrs Dunworth and gave Mirvac until June to complete the work.

Mrs Dunworth then appealed and in an unanimous judgment today the Court of Appeal upheld the appeal, set aside the Supreme Court orders and declared she had validly rescinded her contract with Mirvac on January 28.

It is yet to be seen if this test case could be used by other property owners to annul their own contracts. If so Mirvac along with other SEQ exposed developers are in for significant exposure. It certainly isn’t hard to find reasons why someone would go to the effort of attempting to release themselves from a contract on a flood exposed property.




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  1. Mirvac would be better to do a Harry Triguboff and market specifically to the Chinese… speaking to somebody in the know recently the Chinese are still buying most of Melbourne’s off the plan apartments and we’d really be stuffed without them holding up the bottom line. Given this weekend’s “The Block” results it looks like the bottom line needs all the help it can get…

    • good luck to all the chinese buying melbourne property. they are no different to the japanese that did their dough who were buying up most of QLD in the 80’s just before the 90s recession. Dont see many of them around these days do we?

      • My thoughts exactly GB. Chinese malinvestment can only offset falling local demand for so long. Once word gets out in China that Oz RE is falling the buying will slow, thereby exacerbating the falls.

  2. The case of the dodgey car park is not typical of Mirvac projects. They typically target the high quality end of the market (with prices to match). It will be particurlarly interesting to see how this market segment performs over the next few yes compared to the sub 600k ‘budget’ category.

  3. Management of all Australian big developers is a shame. They are having the highest margins in the world and still they struggle to make decent profit. Their business model was based on land hording and waiting for price to double.

  4. “that real estate price increases are no longer part of their business model.”

    And it never should have been. I’m still astonished when i look at the performacne of the REIT index vs the ASX 200 over the 2000’s (before GFC). LPT’s are supposed to be defensive stocks, who’s activities are to own high quality assets that attract excellent rental returns, and provide stable and predictable income returns. They aren’t meant to leverage and chase capital growth.

    Surely the managers at MGR are joking with this statement?? It’s taken them four years after the GFC to conclude that capital growth shouldn’t be part of their business model? No shit…….