NZ regional hotspots where population will boom
26 November 2016
published by nzherald.co.nz
Growth hotspots that investors should be aware of. Southwest Christchurch is the surprise growth region
New Zealand's top hotspots 2013-23
Population growth hotspots have been identified throughout New Zealand in a new report that shows Hobsonville in Auckland is about to "take off" with 254 per cent growth in just a decade.
Infometrics' latest Regional Hotspots 2016 report, shows the country's top future population growth areas between 2013 and 2023, revealing some obvious and less obvious areas.
Hobsonville's population will accelerate 254 per cent as new housing supply expands, with next year's Waterview Connection opening, the Northwestern Motorway upgrade and the 2011 completion of the Upper Harbour Highway, Infometrics said. About 8000 dwellings are planned in that area to Auckland's north-west, of which about 7400 are in the Hobsonville Point development.
New Zealand's second-fastest growing region will be south-west Christchurch, up 105 per cent in the decade; followed by central Christchurch (83 per cent) and Papamoa, up 74 per cent.
Earthquakes had amplified the rate of development around Christchurch's city fringe urban areas, Infometrics said, noting a drift to the west and south, particularly Rolleston, West Melton, Wigram, Prebbleton, Lincoln and Halswell.
Three other top Auckland hotspots were identified: Beachlands-Drury, Orewa and Central Auckland.
Statistics NZ released data this week showing New Zealand's annual net gain of migrants hit another record high in October, rising to 70,300, surpassing the previous peak of 70,000 set in September. Annual migrant arrivals were 126,100, a new record, beating the record 125,600 set in the September year. Annual migrant departures were 55,800, from 55,700 in September, it said.
Infometrics said New Zealand population growth was at its highest level since the mid-1970s.
Non-bank finance makes for small development boom
25 August 2016
published by Landlords.co.nz
Housing supply shortage and tighter bank lending requirements mean small-scale property developers are flocking to non-bank alternatives to secure finance for their projects.
By Miriam Bell
Hamilton-based mortgage broking firm Omega Capital has seen demand for non-bank finance from small developers skyrocket in the past two years.
Omega Capital director Scott Massey said growing numbers of people are undertaking small scale developments on blocks of land that they own in populated areas.
“They may have been holding the blocks, which are usually between half a hectare to five hectares in size, with an eye to future development.
“And now they are taking advantage of the current market conditions – ie: land shortages and soaring demand – and electing to subdivide and build perhaps four, six or eight townhouses on the space.”
Creative financing solutions for such projects are increasingly being directed to independent companies like theirs rather than the banks, he said.
“We don’t have exact figures for the increase, but I would estimate there has been a 50% increase in such approaches.
“That’s pretty significant. While that is just through our business, I think it’s probably a good indicator for the broader market too.”
For developers, flexibility is one of the key attractions of non-bank lending alternatives.
Massey said the lending criteria involved is quite different to that of the banks.
“Banks are quite rigid in their requirements – around LVRs, risk profiles and the like. Alternative financiers tend to be more flexible in their approach.”
However, it was important that prospective developers wanting to take the non-bank finance route do not have a fixation on interest rates, he said.
“Interest rates are only going to be a small part of a development project’s overall costs. Having to pay a bit more interest than to a bank shouldn’t make a big dent in the overall cost of a project.
“Paying a bit more in interest, could well mean the project can actually be carried out. People should look at what is being offered and the flexibility involved, rather than just interest rates.”
It’s also important to note that the new LVRs don’t affect the non-bank lending options available, Massey added.
“There is a lot of capital around for small developments. It’s just a matter of finding and structuring the right loan for a project.”
iLender director Jeff Royle agreed that there has been an increase in borrowers looking for non-bank finance to carry out small development projects.
He said it was a noticeable increase, which was due to a combination of factors including the new LVR restrictions and a general tightening of bank lending criteria.
“Not only are we seeing a jump in the number of first time non-bank lending enquiries, but we are seeing more enquiries non-bank finance for small developments and subdivisions.”
In his view, banks are often not keen on financing such projects anyway while non-bank lenders are far more flexible about such projects.
“Yes, there will be higher interest rates if you opt for non-bank finance, but I would argue that if that is an issue for the project cost you probably shouldn’t be doing it anyway.”
Royle said structuring non-bank finance funding for development projects could sometimes be a bit complex.
For example, it might be that a non-bank mortgage lender wouldn’t cover construction costs on a development, which would mean finance for the build would have to come from a different non-bank financier.
However, any such issues are easily overcome with the help of a good broker, he said.
Given changes under Auckland’s Unitary Plan, along with housing supply shortages in markets around the country, the number of small development projects in the pipeline is only likely to increase.
As such, the trend for smaller scale developers to head to non-bank lending alternatives is only set to grow, Royle said.
Developer demand for bank-alternative mortgages surges
22 August 2016
published by Scoop.co.nz
Private property developer demand for bank-alternative mortgages surges
An environment characterised by soaring demand for housing and a passive stance imposed by New Zealand’s trading banks has placed companies like Omega Capital Corporation in a position of strength.
The Hamilton mortgage broking house is one of the largest regionally-based companies in its industry, which focuses on commercial lending. Omega services a nationwide need for finance and equity solutions for commercial, rural, business and residential clients.
“In our six years of operation, the biggest change has come in the past two. We’ve seen the demand for finance from private property developers nearly double. This is directly attributable to the trickle-down effect of land shortages, primarily in key population areas, and the massive surge in demand for houses,” said Omega director Scott Massey.
Driving the demand for housing is confidence among New Zealanders in home ownership as the best form of investment. A recent ASB Bank survey showed that 21 percent of those approached believed their ‘own home’ was by far the best investment, up from just 14 percent at the end of 2015.
“Omega Capital is currently seeing a notable increase in the numbers of people with sizeable land blocks in populated areas who are electing to subdivide and build perhaps four, six or eight townhouses on the space.
“The search for financing for those types of creative solutions to land use is increasingly being directed to independent companies like us rather than the banks,” explained Massey.
He said the company’s flexibility in today’s tough market space is a big plus for such developers and something banks rarely offer.
The company generally facilitates property loans between $500K and $20 million, and clients seeking development funding with Omega can secure finance loans even after their request has been declined by banks. The company is able to source funds from the trading banks and finance companies, and has private lenders willing to debt or equity-fund projects.
Omega Capital general manager Alex Matheson said trading banks’ lending criteria for development type loans appears to have tightened further still.
“Omega is seeing a continuous flow of proposals for small to medium-sized residential building developments and residential subdivisions,” he said, “particularly in the main centres such as Auckland, Tauranga and Queenstown, where there is high demand for sections for new house building, and from house and land buyers for completed housing.”
He suggested trading banks could be doing more to speed up the supply of residential land and new house builds, and said: “A greater supply of developed sections ready for building, and more builders being prepared to build spec houses are the key to solving the current out-of-balance housing supply/demand cycle. There appears to be a lack of support from the local banks for this.”
Mr Matheson said it was for this reason that Omega’s workload had “never been higher, and we are forecasting the present level of high demand to continue until at least 2018.”
“Omega’s funders see the market as low risk for both residential and commercial building. They are more willing to support developers than the trading banks and apply less stringent loan criteria.
“However, the costs of finished developments are higher than if bank-funded, and inevitably this is impacting on the land prices for new houses.”
ENDS
Diana Clement: Do your homework before you lend
20 August 2016
NZ Herald
Peer-to-peer platforms offer high returns, but they're not risk-free.
Peer-to-peer (P2P) lending has potential risk written all over it.
Don't get me wrong - I love the concept of cutting out the bank as middleman and earning far higher interest than term deposits offer. It's just that investors need to be aware of what they are agreeing to, and what can go wrong.
The way it works is that investors lend money to borrowers via a "platform" such as Harmoney, LendMe, Lending Crowd or Squirrel Money. The investors then earn interest direct from borrowers, minus a "platform fee".
After nearly two years of P2P in New Zealand, some Harmoney investors were unhappy about some frauds on the Harmoney platform this year. The investors were aggrieved that they picked up the tab for the frauds, with their capital written off after Harmoney had approved the fraudsters' loans.
While the investors were upset, that risk is included in the Harmoney contract and the possible impact of fraud is mentioned on its website.
A Harmoney spokesman assured me that these were ordinary identity theft frauds that were typical in the business of consumer lending, rather than being anything more complex.
I received an email with a complete documented history of the run-around one investor received over several months when he tried to find out more about $125 that had disappeared from his account.
He was finally told that it was money laundering and as a result Harmoney couldn't release details thanks to Section 46 of the Anti-Money Laundering and Countering Financing of Terrorism Act.
Senior Harmoney staff members have, however, discussed details of some of the frauds on Sharetrader.co.nz with investors.
The investor subsequently sent a copy of his case notes from Financial Services Complaints Ltd to the Herald, documenting every communication. When I asked Harmoney about the case, it sent me a statement saying it did not involve money laundering, but says the Act still applies.
The statement also said that 0.08 per cent of loans had been fraudulent. That amounts to $232,000 of fraudulent loans. Being consumer lending it's almost inevitable that more will emerge over time.
It turns out that an A-grade borrower may not always be what you and I would consider to be a top-notch risk.
Harmoney says that $232,000 amounts to "less than 1 per cent of the $290 million paid out to investors since inception."
It believes that fraud figure compares well with other financial institutions.
One of the other possible risks with investing in privately-held P2P lenders is that they don't have the prudential regulation that applies to banks, or the continuous disclosure requirements of stock market-listed financial institutions.
How the P2P platforms deal with the inevitable frauds differs.
Harmoney investors take a haircut when frauds occur. Squirrel Money takes 1.9 per cent from the interest paid to investors and keeps it in a reserve fund to protect investors from losses when a borrower defaults on a loan.
And LendMe says all of its borrowers have to see their solicitor before drawing down the funds. Online-only application processES could make some P2P platforms vulnerable to fraudulent schemes such as identity theft.
One of the big risks of P2P lending I've become aware of as the investment model beds in, is that of proprietary risk ratings. Each company develops its own rules as to what an "A" or "F" grade borrower is.
It turns out that an A-grade borrower may not always be what you and I would consider to be a top-notch risk.
Many of the loans I have made via Harmoney are to "A-grade" homeowners who are paying 9.99 per cent to 17.15 per cent for purposes such as debt consolidation, home improvement and holidays.
Logically, if they were a home-owning A-grade risk - in the eyes of the big banks - they'd simply extend the mortgage at 5.45 per cent over the same number of years to cover these costs.
Investors here have to trust what the companies tell them, and not all are happy with that.
The grades go right down to F5 and some investors get giddy at the idea of being able to receive 39 per cent from this end of the market.
The problem is that lending money is easy. Getting the borrowers to pay it back is the hard part and there's no guarantee that the loans are correctly priced even at 39 per cent.
Another risk faced by investors is whether the P2P platform has an adequate collections process. When loans are charged off, as some of mine have been, the file is passed to a collections agency.
I note - though my own experience doesn't carry any statistical weight - that of my 12 failed loans with Harmoney, 29c of my outstanding capital has been recovered so far and some of those loans were written off in early 2015.
One problem for investors is that the risk of the various P2P platforms could vary hugely, but unlike the UK, where risk ratings for the platforms are available from P2P specialist 4thWay, New Zealand platforms have no such independent analysis.
Investors here have to trust what the companies tell them, and not all are happy with that.
Investors need to consider, for example, the relative risks of each platform's target market for lending and make a judgment as to whether the risk is priced correctly.
Are they secured or unsecured loans?
Lending Crowd, for example, only offers loans secured by vehicles, and founder Wayne Croad says this is because he and the other directors lived through the Global Financial Crisis and understand that retail investors have a low appetite for risk.
Another theoretical risk is the potential for poor front-end loan application risk assessment by a lending platform.
The reality, as Harmoney chief executive Neil Roberts and others point out, is that so far investors have lost very little and their returns have been good.
Harmoney, for example, says its investors have achieved "an average realised annual return since inception of 11.85 per cent."
While that is obviously attractive, the P2P model in New Zealand hasn't yet been through a downturn and that could be telling, as P2P analysts Pitchfork pointed out. It questioned whether the rapidly growing industry will weather any future storms.
I do believe that P2P lending as a concept is good. But I recommend that anyone who wants to invest in P2P really should undertake as much due diligence as possible about the platform they wish to invest in and P2P lending theory in general.
END
