Debt and Tauranga ratepayer-funded interest payments on a buy-back deal with a property developer could eventually reach about $22 million before the money was repaid.

The impact of the deal on the council's balance sheet and ratepayers' pockets has been revealed a few months before the clock started ticking on Carrus' buy-back option.

It began when Tauranga City Council moved to stop Carrus from creating a lifestyle subdivision on a 170ha farm in the middle of Te Tumu block - a huge subdivision that will extend Papamoa to the Kaituna River mouth.

The council paid $10 million and the Western Bay District Council $5 million to buy the farm in 2007, with the proviso that Carrus had first option to buy it back once the land was re-zoned residential.


Calculations based on information provided by the council showed that by the time Carrus' 10-year buy-back option began in December, Tauranga's debt plus additional interest repayments would have reached nearly $18 million.

Interest on Tauranga's original $10 million loan was allowed to compound until 2013 when the council capped the debt at $14.8 million. After that the interest became an annual burden on ratepayers.

The deal with Carrus was that when it took up its option, it would repay the original loan and interest repayments. All other costs associated with the land such as rates were being met by the occupier and former owner

Tauranga Mayor Stuart Crosby's "best guess"' of the likely buy-back date was about 2021. A lot depended on the uptake of the neighbouring subdivision of Wairakei because the council opposed subdivisions leap frogging ahead of each other.

"Our greenfield strategy is about sequential development and not pepper-potting developments around the city."

Based on average interest rates prevailing in the market, a 2021 buy-back date would see total interest to be repaid by Carrus reach about $6.8 million.

Mr Crosby said a report was coming to the council next month on Te Tumu's infrastructure plan and progress on the planning change. A lot of work had gone into Te Tumu and it had not shown up any fatal flaws.

The work included a comprehensive stormwater consent and a reliability analysis. The debate currently going on with landowners was how many houses could safely go on Te Tumu, with the landowners disputing the council's figure as too low.

However, Mr Crosby did not expect that the issue would be a show stopper.

The original estimate of 2011 to complete Te Tumu's re-zoning had not allowed for the Global Financial Crisis that impacted on Tauranga's property market for years, he said.

Carrus spokesman Paul Adams said the sale and buy-back agreement had been at the behest of the council and was not a sweetheart deal.

Mr Adams said he was stopped from doing a 60-lot rural/residential development because the council said it would have complicated the development of Te Tumu. He needed the money because Carrus was incurring large holding costs.

He said negotiations on the sale and buy-back agreement began in 2006 when the market was still bubbling along, long before the Global Financial Crisis hit in 2008. The GFC had put everything into a holding pattern.

Now that the pace of development had picked up again, the council was scrambling to get the land re-zoned. "We are waiting to buy the block... it's the council that's dragging the chain."