KEY POINTS:
Patrick Fontein, developer of the failed Kensington Park in Orewa, has blamed his project's demise on plummeting property values and bank repayment demands as the global credit crunch spread.
His venture collapsed when the banks suffered from the international financial meltdown, he said, explaining how diving real estate
valuations spelled disaster for the entire property development sector.
Fontein said he would lose the Kensington Group of companies he had built up over 14 years.
He wrote to subcontractors, house purchasers and owners saying many people had wondered why a desirable, award-winning development could falter.
Land revaluations were in some cases wiping out 60 per cent of a property's worth, so banks needed money back to comply with the asset-to-loan formula, he said.
"There has been a major review of how land is valued and funded within the valuation and finance industry worldwide and in New Zealand," Fontein said.
He cited the example of Auckland land valued at $4 million two years ago, allowing a developer to get a $2 million first mortgage from the bank using a conservative 50 per cent loan-to-value ratio.
But now the land was revalued at just $1.5 million, the bank wanted money repaid and this put developers under huge pressure, he said.
Worldwide market turmoil, the disappearance of finance companies and progressively tighter lending and credit conditions had affected property developments.
"Almost all subdivisions of house starts stalled," he said.
But property sources challenged this, saying all property owners faced the fact that if values fell, they were forced to put in more capital to bring their loan-to-value ratio back to the bank's limits.
Fontein was wrong to say there has been a major review of how land is valued, sources countered.
"Put correctly, Fontein should have said land values have fallen and this has called for more capital to be put up by investors," one real estate specialist said.
Fontein said the cost of putting in infrastructure required by Rodney District Council for 750 houses was huge and when credit conditions tightened, funding this became increasingly difficult, he said.
Sales were strong until the winter when Fontein said financiers had become concerned.
He defended Kensington Park's architecture, design and quality.
"I have heard unfounded insinuations of potential leaking buildings, workmanship issues, ground movements, etc, which are outrageous and without any substance. People who make these comments, and media who publish it, have a lot to answer for.
"The net result for me personally is that after 14 years of hard work to grow the Kensington Group of companies and over three years at Kensington Park, I will lose all these companies. I have been very proud of our achievements, which have included winning many national and international awards on our projects. In the end, this now counts for nothing as my family and I will lose everything.
"My biggest concern, however, is for the future of the project.
"Kensington Park now has two potential outcomes after completing the near finished Stage 1B buildings and the six Seaview homes.
"First, the receiver could sell the entire project to an entity which might continue with a master-planned community, either similar to the current plan or varied. "Or secondly, the receiver could cut up the site and sell each development block to the highest bidder, resulting in four to eight developers simultaneously buying land.
"Of the 120 master-planned community projects I have visited, the only time I have seen this second option used is at Gulf Harbour, Whangaparaoa. The other 119 projects have seen that it makes no economic long-term sense for all the project stakeholders to bulk release large chunks of land.
"Why is this? When you have four to eight developing landowners all buying land at the same time, they have to compete against each other to commercially survive. The result is a price war where each of the developers has to start developing quickly to recover their land holding costs. The eventual effect of the price war is a reduction in building quality, ie build it for $10,000 cheaper, sell it for $10,000 less.
"All properties within the master-planned communities would spiral down in value, including the existing owners' homes. Eventually the remaining development land also reduces in value.
"This is exactly what has happened at Gulf Harbour, the design and build quality has suffered and the remaining land is now worth very little. Existing property prices at Gulf Harbour have collapsed," Fontein said.
But a consultant challenged the assertion about separate developments within one project saying this was the norm here.
"What about Jacks Point and indeed most other major residential subdivisions which are sold in parcels to different home builders who agree to some overall concept?" the valuer asked.
PROPERTY PANIC
* Patrick Fontein Founded Kensington Properties.
* Has completed about 20 big projects.
* Won national and international awards.
* Green Building Council chairman.
* Former Auckland president on the Property Council.
* On Auckland City's urban design panel.
* Has three sons and lives in Remuera.
