KEY POINTS:
The role of bankers and valuers in the $70 million Blue Chip debacle is being questioned, as distressed investors prepare to take big losses on their properties in New Zealand's own version of the sub-prime mortgage meltdown.
More than 4000 Blue Chip investors bought about 2000 properties, mainly
Auckland apartments.
A credit controller for a major trading bank says the investors who are being forced to sell properties will create a crunch here not unlike the United States' sub-prime mortgage crisis. There, risky home loans extended to American borrowers burned banks which are increasingly reluctant to lend to each other and charge more when they do.
Chris Stanley, president of the Property Institute, questioned the entire sales process which prompted people to invest in Blue Chip.
"My concern is whether the people involved would have fitted the definition of a willing buyer and willing seller. I'm not sure how the sales process worked but it's questionable whether they had been fully informed," he said.
The financial environment valuers were working at the time investors bought was also markedly different.
"Refinancing now will be under significantly different terms, with higher interest rates and tighter debt-to-equity ratios. There's a credit squeeze going on because the availability of finance and the cost of finance has changed significantly," he said.
The Herald has reported that many Blue Chip investors - spread from Auckland to Invercargill - did not even get a property, despite paying six-figure deposits, leaving them in the worst situation. They paid deposits on apartments which were not built or not finished.
Other investors who did settle on a townhouse or unit are now discovering their places are worth much less than they thought, sometimes just half. They are beginning to question the valuations they relied on.
Banks also used those valuations to approve the loans but it is now emerging apartment prices may well have been over-inflated.
Westpac was the lender on one Tetra House apartment auctioned for a massive discount in Auckland last Wednesday by distressed Blue Chip investors. The couple paid $385,000 but got just $190,000 back at auction, leaving them in a precarious situation.
But Craig Dowling, Westpac's spokesman, said the bank was not over-exposed to losses being experienced by Blue Chip investors.
"I don't believe Westpac has been any more or less active in lending than anyone else. Mortgages are provided by lenders to facilitate a purchaser into a property and are decided on a case-by-case basis," he said.
He encouraged any distressed Blue Chip investors to approach Westpac directly before deciding to sell.
"Should an individual experience difficulty making repayments they should engage their bank at the earliest opportunity," he said.
The valuation issue would be best addressed by the body representing professional valuers or perhaps the individual valuers concerned, he said.
Martin Dunn, managing director of City Sales, has lodged a complaint with the Valuers Registration Board against a single valuer who he believed gave inflated values.
The board sets the standards and requirements to become registered as a valuer and registers valuers who meet these standards.
Registered valuers working for the public must have an annual practising certificate from the board which also disciplines registered valuers if they do not meet minimum standards.
The credit controller said he had rejected all involvement with Blue Chip because he suspected major problems well before they reached the public spotlight.
"But some of the people who loaned to these investors should be shot. Those lenders didn't read the disclaimers. They just look at the bottom-line figure for the valuation."
He said banks loaned money for apartments using the unit as the main form of security but taking a collateral charge over other securities like a family home.
WATCHDOG
Valuers Registration Board:
* Based in Wellington
* Imposes penalties on valuers
* These can be censures or fines
* Valuers can also be struck off