Toughing it out

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Mortgagee meltdowns and crashed developments haven’t dented a leading banker’s confidence in Queenstown property.

Westpac business banking boss Ian Blair received a harsh reminder of Queenstown’s property casualties on the very day he winged in last week to open his bank’s new Frankton branch.

Last week’s Mountain Scene had front-page news of his bank taking to mortgagee auction two mega-homes with valuations totalling $10 million – another story also revealed the previous owner of Sofitel Hotel’s retail complex had gone bung, owing Westpac $10.1m.

Only “absolutely the minority” of customers are taken to mortgagee sale, Blair says.

“Where possible, we work with borrowers to avoid those things.”

In fact Blair, who recalls celebrating his 21st birthday here, could only sing the resort’s praises to Mountain Scene.

Customers he’d talked to – such as AJ Hackett Bungy – had just come out of a “really positive season for tourism, which is absolutely fantastic”, and his clients were hopeful of a good summer.

“That will underpin the Queenstown economy, as it always has.”

As with the rest of New Zealand, liquidity is returning to residential property even if there haven’t been huge increases in sale prices, Blair believes. “Properties are starting to change hands – without that happening, it doesn’t matter what price you’re selling for.”

His bank is still lending more than 80 per cent of the value of homes – “We were doing that at the peak of the boom and we’re still doing it today.

“There have been some tough times in the real estate market so those who were leveraged up at the top of the cycle – whether it’s in Queenstown, Hamilton or Auckland – have all experienced a degree of pain.

“What’s important for us is where we can, we work with those customers through the tough times.”

It helped that floating interest rates were at record lows, although longer-term rates are going up.

“At the short end of the curve, affordability for housing has never been better.”

Blair is unfazed by the highly publicised problems experienced in Queenstown by bankrupted developers such as Rod Nielsen and Dan McEwan, and failed developments such as Dave Henderson’s Five Mile and  Nigel McKenna’s Kawarau Falls Station.

“I think Queenstown was a booming town, it was giving high returns for property developers for a really long period of time.”

A lot were leveraged up “beyond levels that, with the benefit of hindsight, seem reasonable”.

“But you’ve got to put it in context – we’ve seen some really good development in the town over a long period of time.

“We’re fortunate in that, whilst we’ve got our share of assets that are doing it a little bit tough, we haven’t been exposed to some of those higher-risk names.”

His bank was still happy to lend to developers under the same criteria – “We’ll still require 30-40 per cent equity.”

The problem was that many developers topped up their bank loans with money from finance companies, who have now all but disappeared.

“That affects the liquidity in the market for higher-risk products – and you’re seeing the fallout from that.
“We play a different role in the economy than finance companies do.

“They have always taken higher-risk transactions than the trading banks have – in many cases they’ve taken equity positions, and that’s not what our shareholders want us to do with their money.”