Tight lending curbing sales
One of New Zealand’s main real estate groups claims the rural property market is being stifled by a tightening of lending criteria by the banks. First National Group general manager John Stewart says 90 per cent of the network’s rural agents, questioned for the group’s quarterly survey, have reported a decline in buyer interest attributable to tight lending criteria.
Mr Stewart says the banks are demanding very high levels of equity, and are still working on the basis of the $4 to $4.50 dairy payouts of earlier this year and late last year.
He adds that he wonders whether the banks are really participating in the economic recovery of New Zealand.
‘‘They are sitting there, waiting for the economy to come away, so that they can do well out of it. Yet all of the big four [banks] have made substantial profits this year, and one of them has made record profits at a time when everybody else, in every form of business I know in New Zealand, has been really struggling.’’
The loss of such lenders as South Canterbury Finance and Allied Nationwide Finance had given more power to the main bank lenders, whose tight criteria had not yet been loosened in most parts of the country.
‘‘Banks will claim they are reasonable. But the sheer number of buyers losing hope, at the time of their preliminary inquiry to their bank, shows that access to funds has not improved to the degree being claimed.’’
PGG Wrightson real estate general manager Stuart Cooper says the tightening of lending criteria has occurred across all sectors.
‘‘The days of the banks partly driving the market, as they did for the past 10 years, have gone.’’
This meant that although there was a lot of interest in rural properties, it was cautious interest that was taking a long time to translate into sales.
In the year to June, only eight
The general manager of one of New Zealand’s main real estate groups says a tightening of lending criteria by the banks has discouraged buyers in the rural property market. properties were sold for more than $10 million in the whole of New Zealand.
This made establishing the true value of a property difficult.
‘‘It’s well-known that values have come back, but exactly what they have come back to is a moot point.’’
Another problem was the length of time it took to sell a farm, which had doubled from 80-90 days to 180 days when the credit crunch struck.
This had, however, gradually reduced as the rural property market had slowly improved since the start of the year.
‘‘It’s now about 5 per cent up on where it was in January,’’ Mr Cooper says in his assessment of the situation.
The collapse of SCF and other finance companies had left small numbers of very cautious investors looking at the rural property market.
BNZ Timaru senior rural manager Steve Smith says lending criteria demand a robust cashflow and good business governance.
‘‘There are good operators out there who are looking at opportunities, and we’re presenting offers of finance to those good operators.’’
He says the BNZ uses $5.50/kg of milk solids as a benchmark for any deals.
Over the long term, he says, that favours businesses that are robust enough to handle the volatility in the dairy payout during the past few years.
Meanwhile, he adds, people’s desire to borrow money has greatly diminished, as a result of continuing nervousness caused by the recession.
Mr Smith says rural property values have also dropped, and vendors are not accepting what they perceive to be below-market prices for their properties.
A going concern?: