Chip Eng Seng, through its 70%-held subsidiary in Australia, CES Sirona Lyall (WA), will begin the termination of the sale contracts that were entered into with the purchasers of units in 28 Lyall South Perth.
28 Lyall South Perth is a proposed mixed-use development in South Perth, Western Australia.
CES Sirona Lyall (WA) is the joint venture company (JVCo) set up between Chip Eng Seng and Sirona Lyall Street.
In November 2017, the group and Sirona Lyall Street had entered into a 70:30 joint venture (JV) where Chip Eng Seng held 70% in the JV.
At the time, the JV acquired two adjoining sites located at 31 Labouchere Road and 24 Lyall Street, South Perth. The project, 28 Lyall South Perth, now bears the new address, 28 Lyall Street, South Perth.
The site has a freehold tenure and a total site area of approximately 2,040 sqm. It is located in the inner-city suburb of South Perth and approximately 1.5 kilometres from Perth’s central business district as well as in close proximity to the Swan River.
The project was meant to comprise residential apartments with a commercial podium. Half of the residential units in the project have been sold since its launch in August 2020. Construction of the project has yet to commence.
According to Chip Eng Seng, the decision to terminate the project came as project financing costs had risen “significantly” amid the Covid-19 pandemic and the ongoing Russo-Ukrainian conflict.
The pandemic had caused disruptions to the supply chain for construction materials and labour, which increased construction costs in Western Australia.
See also: Frasers Property: Narrowing the discount
Furthermore, the sale contracts entered into with the purchasers are conditional upon the JVCo engaging a builder to construct the project on terms and conditions acceptable to the JVCo within 30 months from entering into a sale contract with a purchaser.
As a result of the pandemic and the conflict in Ukraine, the JVCo has not been able to engage a builder to construct the project on terms which are financially viable.
Though sales of the units have been “relatively encouraging”, there is no visibility as to when the rising costs will retreat to more normal rates, explains Chip Eng Seng in a bourse filing on July 21.
“In view of the incremental execution and financial risks to complete the project… the group and its JV partner have concluded that it is no longer feasible to continue with the project,” it adds.
As a result, both Chip Eng Seng and its JV partner have decided that the JVCo's appropriate course of action is to exercise its contractual right to terminate the sale contracts, to allow the purchasers a timely exit.
The termination of the sale contracts involves the return in full of the deposit placed by each purchaser, together with any bank interest accrued on the deposit.
Chip Eng Seng says it will explore other viable options with its JV partner with regard to the site.
The termination of the sale contracts is not expected to have any material impact on Chip Eng Seng’s net tangible assets (NTA) and earnings per share (EPS) for the current FY ending Dec 31.
Shares in Chip Eng Seng closed 0.5 cent higher or 0.78% up at 64.5 cents on July 20.
