LENDERS QUESTIONABLE PRACTICES
A GROWING number of property experts have joined the chorus against the questionable practices of lenders during the property boom.
This comes as the federal Government prepares to outlay $2 billion to bail out banks and commercial property developers.
Colliers International residential national director Curtis Field said the continuing downturn in the property sector was highlighting the extent of the excesses of the property boom.
"A lot of the properties that we see now, from a mortgagee in possession position, are projects that have been financed on the basis of a continuing blue sky and the reality has been the opposite," Mr Field said. "It has been sales slowing down and costs going up, to the point where what is owed on a project and what it is actually worth just doesn't add up."
Mr Field said the problem of questionable lending practices was most pronounced among non-banks lenders -- such as mortgage funds like the struggling City Pacific First Mortgage Fund and regional banks -- but the big banks were also implicated.
"If commercial yields were at all-time lows, the question has to be asked were they going to stay there?" he said.
Questions surrounding the lending practices of the major banks have come into focus following this week's announcement of a federal government-led $4 billion lending facility aimed at bailing out the commercial property sector.
Under the proposal, the federal Government would provide $2 billion -- with the four major banks providing a further $2 billion -- with those funds to be lent to property developers burned by retreating foreign lenders.
The Rudd Government said the bailout was in response to the evaporation of credit following the global financial crisis, which began in August.
The move has polarised industry experts with some -- such as the property developer funded lobby group the Property Council of Australia -- hailing the move while other experts question pushing business risks back to the tax payer.
Industry experts claim the major banks' reliance on overstated property valuations -- or "friendly valuations" -- was widespread and responsible for the major headaches felt by the local banks well before the global financial crisis began in August.
Property analyst Michael Matusik yesterday joined the chorus against the proposal yesterday.
He said it was unreasonable for taxpayers to be forced to bail out property developers -- many of whom had made enormous profits during the boom.
"Property development is a risk," he said.
"What has happened in global financial markets may have been unforseen but it's still an element of risk."
Prominent property researcher Bill Morris, author of the Midwood Investment Report, said the proposal was "throwing good money after bad" and could further exacerbate an acute oversupply of commercial property.
"What the Government should do, if they are worried about the commercial sector, is to invest some of the money in the Future Fund in the major banks," Mr Morris said.
"The Government would be investing taxpayer's money, rather than lending it out to developers where you could lose the lot. It's simply not a good idea to be throwing good money after bad."
source: the australian online
