Bank funding starts to dry up
The country’s big property developers and owners have raised the red flag that the main banks are starting to turn off funding for property development, raising fears that few buildings and apartments will be built.
The new requirements from the Reserve Bank for trading banks to hold a lot more capital to help protect them from failing is being blamed for the squeeze on bank funding.
Property Council of New Zealand chief executive Leonie Freeman said a recent survey of industry professionals by the Royal Institute of Building Surveyors and the property council showed respondents reporting it was harder to get bank financing. The council represents owners with about $50 billion of property in New Zealand.
‘‘Many respondents are beginning to warn that finance for new developments and business lending is increasingly becoming an issue, and some have seen the main trading banks start to turn the tap off in this sector,’’ she said.
‘‘While it is too early to say definitively, this does create a genuine risk that we may start to see restrictions in the building of new commercial stock.’’
The RICS-PCNZ Q4 2019 New Zealand Commercial Property Monitor showed that more than 35 per cent of respondents said credit had deteriorated slightly, rising from just over 15 per cent in Q3, while about 3 per cent said it had deteriorated significantly, rising from about 1 per cent in Q3.
At the same time national real estate firm Colliers International has launched a new debt advisory service to source domestic and global finance for its clients, and it will be led by ex-BNZ corporate property banker Chelsea Herbert who has been appointed director of debt advisory.
The service would provide advice for all forms of funding, including for property acquisition, refinancing, repositioning, sales and investment.
Herbert said the financial landscape was changing. The New Zealand service would leverage the capabilities of Colliers’ debt advisory unit in Sydney.
‘‘The increased capital requirements imposed on banks have reduced funding for commercial and residential property developments alike, and taken with it the luxury of sole banking.’’
Colliers could connect customers to New Zealand banks and local capital, and use the expertise of its Sydney unit as well to get funding and capital from around the world.
‘‘We are about providing certainty in an uncertain funding environment.’’
Last August, New Zealand real estate firm Bayleys and local investment advisory firm Forsyth Barr announced they were partnering with an Australian specialist real estate financier, MaxCap Group, to provide loans for commercial property development of $3 million-plus.
National real estate firm CBRE New Zealand executive chairman Brent McGregor said the way the property cycle played out was significantly influenced by the availability of debt capital over the next two years to support property purchases and refinancing.
‘‘The equity available for investment into New Zealand has never been greater but this equity still requires a competitive debt piece to give the levered returns required by investors,’’ McGregor said.
‘‘With the trading banks being required to improve their tier one capital reserves by $20b over the medium term, we will no doubt see some global pension funds and insurance companies take a slice of the New Zealand debt market.
‘‘The local property investment community is hoping this will happen sooner rather than later so they’re not put through expensive refinancing exercises in 2020.’’
The Q4 RICS-PCNZ shows that confidence in the commercial property sector is at its highest since 2017. The sector had been buoyed by an increase in investment demand from domestic and foreign investors, said RICS country manager, New Zealand, Michelle Manley.
There had been a lift in confidence from Q3. The percentage of respondents who saw the market in a downturn phase fell to 23 per cent in Q4 2019 from 44 per cent in Q3.
‘‘This is a a significant decrease and bodes extremely well for the sector as we begin the new decade,’’ Manley said.
In the Q4 survey nearly half of all respondents – 47.2 per cent – thought the commercial property market was at peak, while 23 per cent thought it was on the way down – at early or mid downturn.
Only 5.7 per cent thought it had hit bottom. Almost a quarter – 25 per cent – saw the commercial property market as in an early or mid upturn.
‘‘Many respondents are beginning to warn that finance for new developments and business lending is increasingly becoming an issue.’’
Leonie Freeman Property Council of New Zealand chief executive