NZ property projects face new costs and old challenges

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As construction costs stabilise, development contributions and subdued buyer sentiment create fresh challenges for housing developers navigating New Zealand’s residential property sector – Vincent Capital is ready to help

NEW ZEALAND’s property developers are pressing forward into a market defined by contradictions. Construction risks have eased, and costs have stabilised, yet the weight of unsold homes, subdued buyer sentiment and soaring council-imposed charges is making it harder to bring new projects to life. In this fragile recovery, caution – not momentum – rules the day. Despite signs of economic improvement, developers continue to face significant hurdles that shape investment decisions and project feasibility. “Unsold stock in some areas remains problematic. Buyers’ sentiment is still rather subdued,” says Henry Chen, head of lending at Vincent Capital. Chen, whose non-bank lending firm specialises in property and construction loans, has observed these market conditions first-hand across hundreds of projects.

Vincent Capital is a specialised property finance company based in Auckland, dedicated to providing innovative and flexible funding solutions to property developers and builders. With a strong focus on supporting residential construction projects throughout New Zealand, Vincent Capital offers a range of financing options tailored to meet the unique needs of each client. Known for its expertise, personalised service and commitment to finding solutions for its clients, Vincent Capital is a trusted partner in driving growth and success within New Zealand’s property market.

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“Infrastructure and council costs have escalated substantially. In some areas, the increase in development contributions will make the proposed development unfeasible”

Henry Chen, Vincent Capital

The shifting construction landscape

Published 14 May 2025

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“We have seen in the last few years some cases where projects suffered great loss as a result of incompetent consultants either producing faulty, unworkable designs and/or poor monitoring during construction”

Henry Chen, Vincent Capital

The slow recovery extends beyond housing inventory issues as the broader economic situation casts a shadow over the sector, making consumers hesitant about major financial commitments. “Overall economic recovery appears to be slow and fragile, affecting job security and spending confidence,” Chen says. “The interest rate outlook, although heading in the right direction, faces uncertainty due to the global situation.” The path forward for developers and mortgage advisers alike hinges on a sharp understanding of today’s fragmented market realities. As lenders like Vincent Capital

tighten their focus on feasibility, experience and exit planning, projects must be built on realistic assessments rather than historic trends or optimism. Amid the sector’s persistent uncertainties – ranging from escalating infrastructure contributions to builder underquoting – seasoned developers who approach each opportunity with strategic caution and solid market intelligence are best positioned to succeed. Vincent Capital works closely with advisers to make sure they are across market realities when it comes to development projects and related issues.

While market sentiment remains tepid, there has been a notable improvement in construction delivery risks compared to recent years. This represents a significant change from the severe supply chain disruptions and labour shortages that plagued the industry previously. “Construction risks are now much more manageable compared with a couple of years ago. Construction costs are stable, with little issue regarding material and labour availability,” says Chen. “Costs have come down in many aspects, especially labour and subcontractors.” However, as one set of challenges recedes, others have emerged to take their place. Chief among these is the dramatic rise in costs imposed by local authorities. “Infrastructure and council costs have escalated substantially. In some areas, the increase in development contributions will make the proposed development unfeasible,” Chen explains.

These development contributions, which fund infrastructure needs associated with growth, have become a critical factor in project viability assessments. In some regions, recent increases have added tens of thousands of dollars to per-unit costs, creating financial pressures that can completely undermine otherwise sound projects. “This is just one of the many uncertainties affecting the market,” says Chen. “To our understanding, developers are rushing to apply for resource consents to beat the deadline.” The rush to secure consents before new, higher contribution rates take effect has created a surge of activity that could affect the timing and financial structure of projects in the pipeline. In some council areas, development contributions have increased by as much as 30–40% in recent years, adding significant costs that developers must either absorb or pass on to buyers. This trend has made previously viable projects marginal or unviable without substantial redesign or value engineering. For developers and their financial backers, understanding the specific contribution requirements in each council jurisdiction has become essential to accurate feasibility studies. Vincent Capital works closely with clients to ensure these costs are fully accounted for in preliminary financial modelling.

Builder underquoting

With construction costs stabilising, property developers now face a different kind of delivery risk. Many builders, eager to secure work in a competitive environment, may submit artificially low bids that create financial problems later in the project life cycle. “Rising costs are less of a concern currently, but builder underquoting presents more of a risk,” says Chen. “We are very in sync with the latest market movements and hence can flag numbers that are unusual and discuss these with the client.”

This active monitoring approach allows Vincent Capital to identify potential issues before they derail projects. The firm also examines payment schedules in contracts to ensure they reflect realistic market conditions. “We also check if the payment schedule in the contract is of reasonable form,” Chen adds, highlighting the importance of structuring agreements that protect both developers and funders. The issue of underquoting can be particularly problematic when combined with inexperienced developers who lack the technical knowledge to evaluate construction bids effectively. Vincent Capital’s approach includes comparing builder quotes against its extensive database of comparable projects to identify anomalies that might indicate future problems.

Auckland’s micro-markets show varied performance

Within Auckland, different property types and locations show markedly different performance metrics, creating what industry professionals call ‘micro-markets’ with their own distinct risk profiles. “We are definitely more conservative lending on terraced housing projects in areas where there is an oversupply of such products, for which the demand is diminishing,” says Chen. “We want to support projects where developers are building houses people are happy to live in.” This targeted approach reflects a broader shift in lending strategy, focusing on developments that meet genuine housing needs rather than simply adding to oversupplied segments. The variation between Auckland’s micro-markets means that blanket policies no longer work for development financing. Some areas continue to show strong demand for specific housing types, while seemingly similar developments just a few kilometres away might struggle to attract buyers. Vincent Capital’s local market knowledge allows it to differentiate between these subtle market variations.

Experience matters in risk mitigation

In challenging market conditions, the experience and capability of developers have become increasingly important to project success. Vincent Capital places significant emphasis on assessing the track record of clients seeking funding. “How experienced is the client? Previous experience in the field is vital in this difficult time to avoid making wrong decisions,” says Chen. “What are the capabilities of their project team apart from the main contractor?” These considerations stem from real-world examples of where inexperienced teams have encountered serious difficulties. Chen has witnessed the consequences of inadequate expertise first-hand. “We have seen in the last few years some cases where projects suffered great loss as a result of incompetent consultants either producing faulty, unworkable designs and/or poor monitoring during construction,” he explains. Vincent Capital’s client risk assessment goes beyond checking previous project completions. Its evaluation process includes detailed analysis of how developers have handled past challenges, the strength of their professional networks and their ability to adapt to changing market conditions. This comprehensive approach helps identify clients with the resilience and capability to succeed even when projects encounter unexpected obstacles.

Strategic sales and exit planning

With buyers becoming more selective and off-plan sales more difficult to secure, developers need robust exit strategies to manage risk effectively. Lenders now scrutinise sales campaigns much more closely than during the market boom. “When assessing applications, we evaluate if the products are the right fit for the location and priced at a level that meets the market,” says Chen. “We also control the gearing at a level where, if the developer cannot achieve satisfactory sales, the loan can still be refinanced to a non-development funder for longer-term holding.” This conservative approach to loan-to-value ratios

provides a safety net for both developers and funders, creating flexibility if sales targets aren’t met according to the original timeline. Vincent Capital’s evaluation of sales campaigns includes examining the developer’s marketing strategy, sales team capability, staging approach and contingency plans. It looks for realistic pricing strategies backed by current market comparables, rather than aspirational pricing based on projected market improvements. “We want to see that developers understand their target market deeply – who the buyers are, what they value and how much they can afford,” Chen emphasises. “The most successful projects have a clear buyer profile and design products specifically for those buyers.”

Proactive monitoring reduces project risks

Finding opportunity amid uncertainty

Despite the challenges facing the residential development sector, experienced players who understand the current risk environment can still find viable opportunities. The key lies in thorough preparation, realistic financial modelling and building strong relationships with funders who understand the development process. For developers navigating this complex market, working with financiers that bring both capital and expertise can make the difference between project success and failure. “At Vincent Capital, we are a specialised development financier with extensive experience, having funded hundreds of projects across a wide range of developers – ranging in size, capabilities and experience levels,” says Chen. “We only take on a deal when we are confident that the client has a clear path to success and can achieve a positive result.”

Growth in construction costs slowing

Construction costs index

*Based on 200m concrete slab, brick veneer, concrete tile-roof house. Indexed at Q4 2012=100

Source: Cordell Construction Costs Index

Source: Our Auckland

Inner northwest:

from $25k to $98k

Māngere:

from $18k to $29k

Mt Roskill:

Increase in development contributions in Auckland Council’s proposed new Contributions Policy

from $20k to $52k

Fees councils charge developers likely to spike

Tāmaki:

from $31k to $119k

For funders like Vincent Capital, maintaining close oversight of funded projects has become essential to early identification of potential problems. Regular site visits and open communication channels form the foundation of their risk management approach. “We keep close tabs on the progress of all projects by carrying out regular site inspections and always encourage borrowers to communicate openly with us about any issues and difficulties they encounter,” says Chen. “As a result, we can forecast possible delays early in the process and work with clients to form a plan to overcome them.” This collaborative approach extends beyond simply monitoring compliance. The firm positions itself as part of the developer’s team, providing expertise and support throughout the project life cycle. “We take capital adequacy very seriously and have a dedicated team constantly managing our liquidity to ensure we can meet our obligations to our borrowers,” Chen adds, addressing a concern that has grown since the GFC, when some developers found their funding sources suddenly dried up mid-project. Unlike some lenders that maintain an arm’s-length relationship with borrowers, Vincent Capital sees its role as a development partner. This integrated team approach allows the lender to leverage its extensive experience across hundreds of projects to help clients navigate difficulties and avoid common pitfalls. “What sets us apart in the marketplace is our approach: we see ourselves as an integral part of the client’s team,” Chen explains. “Our commitment to open communication and a pragmatic, solution-focused approach to challenges allows us to work closely with developers, providing guidance and support at every stage of the project.” The firm’s focus on capital adequacy includes maintaining strong cash reserves, diversifying funding sources and conducting regular stress testing of its loan book against various economic scenarios. These measures ensure Vincent Capital can continue supporting developers even during market downturns or unexpected disruptions.