Major property developments are running into trouble! Which asset types do lenders most want to finance?

A newly planned commercial building for lease in central Takapuna on Auckland’s North Shore, right, alongside the existing apartment building, left

The study’s lead researcher, Zoltan Moricz, said the findings showed that only 3 of the 20 lenders surveyed considered subdivision loans still attractive. By contrast, 7 out of every 10 domestic non-bank lenders said townhouse projects were their preferred lending option. However, securing a loan also required developers to meet additional conditions, such as achieving a high level of presales before their finance application could be approved. The survey found that lenders’ presale requirements to reduce lending risk had risen significantly compared with last year’s market.

However, even large commercial and residential projects that have secured finance and are under construction have not all had a smooth run. New Zealand’s mainstream media recently reported that two townhouse/apartment developments in Takapuna were being offered for mortgagee sale.

The titles to the residential properties at 42 and 44 Byron Ave, owned by Hong Liu’s company CDF Wealth, were mortgaged to a company called Brilliant Luna Opportunity, which was not registered with New Zealand’s Companies Office. The brand-new three-storey unit development is being marketed by Bayleys’ Corey Knapp, and it is not the only major residential project recently offered for mortgagee sale.

Last week, China Construction Bank New Zealand called for the mortgagee sale of a multimillion-dollar luxury apartment development in Auckland, a clear sign of distress in the apartment market. The bank appointed agents to sell 33 apartments in The Vector, a new 64-unit development on Bute Road in Browns Bay.

Located in Browns Bay’s town centre, The Vector apartment development

The Vector apartment development is understood to occupy a central Browns Bay location. In their sales advertisement, JLL agents John Davies and Tommy Zhang described it as being “within walking distance of a bustling dining strip, boutique shops, supermarkets, a library, fitness clubs and excellent school zones, with leisurely strolls along beautiful Browns Bay Beach…”

CBRE’s New Zealand associate director of research, Tamba Carleton, said Auckland’s apartment market had taken a sharp turn for the worse, with some projects failing before they even got off the ground，Apartment presales had fallen 83% from their 2016 peak. Only 500 apartments were presold in Auckland last year, and there were no signs of improvement.

CBRE’s survey found that lenders had little appetite for less mainstream property investments such as hotels, while industrial property projects remained their preferred asset class for lending. However, they were more cautious about projects with higher costs and high loan-to-value ratios (LVRs), and also required higher levels of presales.

{ad}The survey also found that nearly half of finance providers could lend at an LVR of 60% or higher, particularly international non-bank lenders. Meanwhile, many developers seeking to overcome funding shortfalls had established their own third-tier finance funds, offering investors returns of 8% to 10% to channel hundreds of millions of dollars in private capital into their developments.

What do you think of these lending preferences? Share your thoughts in the comments!