Dairy farms aren't selling and banks' refusal to lend is largely to blame, says the Real Estate Institute of New Zealand. But major rural lenders deny they've hiked equity ratio requirements and say they are still funding deals reports Rural News.
"There's plenty of money for good, bankable propositions," says National Bank managing director of rural banking Charlie Graham. "Our lending ratios haven't changed at all." Rather, low turnover in REINZ's latest figures reflects a stand-off between sellers' price aspirations and buyers' bids, he says. Also, buyers' equity has been eroded by reduced returns and lower land and stock valuations.
REINZ president Peter McDonald acknowledges the "Mexican stand-off" on price between sellers and buyers on some properties. However, on many others, potential sales are falling through because of lack of bank backing. "The big lenders claim it is business as usual, that their policy is unchanged, but the reality is very few deals are being done, usually because of finance"¦ There is confidence amongst buyers and a lot of interest in farms but there appears to be a distinct lack of confidence from lenders." Where 40% equity was sometimes enough two years ago, now 60% is the minimum and sometimes as much as 70% is stipulated, McDonald says.
"There are very few buyers apart from the corporates who can come up with the 60-70% equity required at present." McDonald says he's never known the market so slow in 35 years in the industry."Prices are holding reasonably well, it's just that nothing is selling. There is very little interest from lenders to get behind buyers and put something together."
But Westpac head of agribusiness David Jones says lower valuations, of both land and stock, are a reason why borrowing ability of buyers may have reduced. "Equity has been eroded by valuations coming down and cash losses"¦ The [bank] equity requirements [to lend] haven't changed at all." Westpac has "a huge appetite" to be lending to viable farming operations, he says, and borrowers' ability to service debt from cash returns remains fundamental.
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