NZF says property market weakness leads to it calling in some loans, debenture reinvestment rates dropping

NZF says property market weakness leads to it calling in some loans, debenture reinvestment rates dropping

NZF Group, half owner of Mike Pero Mortgage Holdings and 70% owner of Finance Direct, says it has called in some overdue loans due to property market weakness.

(Update adds more detail).

Speaking at the company’s annual meeting today, NZF managing director John Callaghan said the impact of the recent receivership of both Allied Nationwide Finance and South Canterbury Finance had been swift with reinvestment rates reducing. Callaghan also said that with the property market remaining “slow” and a desire to build liquidity within the group, NZF had called in some overdue loans over the last six months.

NZF’s shares fell 10 cents, or 50%, to 10c.

“Pressure still remains to continue to reduce debenture funding, it now only makes up 15.3% of the groups funding and its need to be reduced has been amplified by the collapse of Allied Nationwide and South Canterbury Finance,” Callaghan said.

The Crown retail deposit guarantee, which both subsidiary NZF Money Limited and Finance Direct are covered by, expires on October 12. The company said this had provided a distortion in the market place. As of March 31 NZF Money had secured debenture stock of NZ$58.2 million on issue and Finance Direct NZ$5.6 million.

NZF launched a NZ$100 million Residential Mortgage Backed Securities (RMBS) programme managed by Westpac earlier this year. Callaghan said this had resulted in the group’s NZ$225 million Westpac loan facility being extended - on similar terms and conditions - for 12 months to October 18, 2011.

Meanwhile, Callaghan said the Mike Pero business, whose carrying value NZF wrote down by NZ$6.9 million, or about half in its last annual results citing the reassessment of short-term growth rates and profit projections, remained strong.

“A number of new opportunities are being looked at to increase its presence in the property sector in New Zealand.”

The other half of Mike Pero Mortgage Holdings is owned by Australia's Liberty Financial.

As of its March 31 financial year end ,NZF said it had NZ$15.3 million of cash and NZ$31.3 million of undrawn bank facilities.

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Property market weakness?

I read something very disturbing on the "DrHousingBubble" blog recently. Apparently there was a lag of 2 years between the market in California logjamming with unsold properties, and the prices collapsing as they eventually did. And the bottom is still nowhere in sight, as more and more mortgage holders continue to go into the stress zone and the lenders wait it out rather than foreclose.

"Watch this space" in NZ?

I recommend that site for people wanting some more hints of what a planning-induced housing bubble aftermath is like. Your assumptions about the future probably are not nearly pessimistic enough.

Don't worry Philbest it's already here.

Just take a stroll to any RE Agents window and see the logjam now . That's ones that are still in business anyrate.

The number of listings has been declining in recent months.

Yeah, I know thanks to Rodney Dickens' extremely informative estimates, that the "logjam" has been here for nearly a year already. The ratio of listings to sales has been several times higher than historical norms, for nearly a year. If "DrHousingBubble" rule of thumb is right, we should see some serious price crashes in another year or so.

"DrHousingBubble" also talks about "grey inventory"; people who want to get out but have given up and taken their house off the market.  (People who decided to rent instead of own, at any time since about 2002, are smart indeed). Then there are all the people who have gone into default on their mortgages, but the lenders are too scared to foreclose on any more people because it has such an effect on their entire "book". (I suppose a lot of these occupants will end up having had a home for free for at least a while - not that anyone could have planned it that way).

Apparently as the property bubble expanded in California, internal migration dropped noticeably going by moving van stats. Apparently that is another feature of a property bubble and unaffordable homes - reduced mobility of the workforce - yet another whammy to the economy. Meanwhile, in California, most of the moving vans that were operating, were taking people to other States where homes were affordable thanks to pro-growth urban planning. NZ-ers and Australians have not had the luxury of this option, sadly. Our urban planning professions have succeeded in getting their members who staff the councils, to act monolithically. I expect our crash to be the worse for that. The "Texas option" actually blunted the severity of the US's bubble and crash.

Another feature of a property bubble: empty "investment" properties. Investors cease to bother about tenants as they greedily watch capital gains alone. Walk around any neighbourhood in NZ. Around 1 in 100 homes is empty.

Yep, you learn a lot from DrHousingBubble. Only Rodney Dickens comes close in NZ, for attempting to crunch the numbers like that.

Except that California was offering bucketloads of low- or no-interest loans during their whole boom. People on ARMs were paying 3%, 1%, or sometimes no interest. You can see from the charts on this site that mortgage rates in NZ were not unusually low during the boom and that people were consequently not able to take on unaffordable mortgages.

In Ireland, mortgage rates were over 10% for several decades leading up to 1993. Then they fell to 6-8% for the rest of the 1990s, to 4-6% in the early 2000s, to 3.5% for 2003-2006 (the peak of the bubble), then crept up to 5.5%. This was the key factor in Ireland's historic bubble.

Identical monetary and financial conditions applied across the entire USA, yet some regions had price bubbles and some did not.

Property price bubbles have been gradually getting worse and worse according to how many jurisdictions have adopted anti-growth urban policies. Nothing else correlates. If it was all a question of interest rates, Australia and NZ should not have the bubbles they have got, and the entire USA should have bubbles, not just 6 or 7 States.

Ireland is another classic case of urban limits forcing up land values.

Regarding innovative mortgage terms, these came AFTER the Californian bubble, the world-leading one, had experienced sustained 10% per annum increases in property prices for several years. Who DIDN'T expect this to continue, and said so at the time? Who has said so in NZ? Let him that is without sin cast the first stone at the innovative mortgage financiers. If the annual capital gain is definitely going to exceed the going interest rate, how can any mortgage financier lose? It is all very well to condemn these people in hindsight now, but the same people who condemn Californian mortgage financing here on seem to be the same people who say we do not have a housing bubble and property investors in NZ are rational. Pride goeth before a fall, methinks. Check out the splinter in thine own eye before thou offerest to cast the log out of thy Californian brothers eye.

If you think "people in NZ have been unable to take on unaffordable mortgages", you haven't done any research at all into what is the historical norm for % of household income required to service a mortgage, and all those charts done by the Roost people are a waste of time where you are concerned. Check out the Demographia Reports too. Do you know that in the sane, pro-growth jurisdictions in the USA, mortgage costs are around 20% of household income?