Happy New Year everyone (am I still allowed to say this as we’re in mid-February?!),
The year has started and it feels like large portions of the economy are only just now coming online, with public holidays mixing with collective Covid-related hangovers and ongoing uncertainty. It seems as though many needed the break, and duly took it.
But soon, if not already, that will be in the rear view mirror and we will all try and make sense of what we are seeing in front of us. And suffice to say that the picture up ahead is no more clear than this time last year, notwithstanding a little more understanding of the fact that NZ will open up slowly to the world over the course of 2022.
We certainly have been fielding a lot of questions since late last year from both investors and borrowers alike. Primarily, we have been asked why we have been able to bring so many more quality deals to the platform. And secondly, we have been asked about our perceptions of the strength of the security being offered for each loan.
The second of these questions could become a large dissertation in of itself, so I will tackle the first question quickly first. Why more quality deals? Simply put, there are fewer lenders in the market with the funding available to fund deals quickly. The main trading banks have become very particular about where they will fund and how, and the second tier funders have struggled to keep pace with the market. They tend to be unable to fund large amounts quickly while their money is already lent out.
With regards to the security we offer, and tied to that the strength of the property market in NZ (I told you this was a large question) – fundamentally, we have become even more picky about the deals we put on the platform. Our average Loan-to-value ratio is sitting at 53% (so, if the security property is worth $1m, then we are lending $530,000). I don’t point this out to suggest that we feel the property market is at risk of anything like a 20% + decline. Most economists are suggesting that the ‘correction’ may see a reduction of 7% across the market (bearing in mind that growth was 30% last year and a 7% would take us back to the house prices of around the middle of last year).
Those who know me well, will know that I firmly believe that ‘averages’ are dangerous in any case. Potentially great for news headlines, but unfortunately with a tendency to only tell a very unclear picture. If prices go back to levels seen around middle of last year, then will this be the case in Auckland or Christchurch, or St John’s or Fendalton? Who knows. One thing that all of the economists can agree on is that they can’t really agree on anything. And I forget which American president said it (was it Truman or Reagan?), but it goes “please give me a one-handed economist”. And that was because he was hearing that on the one hand this, while on the other hand that, and the thing that suffered was clarity.
It’s because I loathe averages so much that I love our model which enables investors to judge each loan on its merits. Is the security sufficient? what is the exit strategy? how secure does the borrower’s situation look? Not averages, but the devil is in the detail. As with our finish to 2021, we have continued to find good deals in the market to offer the database. And with ongoing volatility in the stock exchange, and a general belief that a smart investment in property is still relatively secure, we have lots of demand from investors to keep finding these high quality Zagga deals.
Anyway, as always the team is available if you want to ask questions about any of the specific deals as they come up. We look forward to continuing to work for you.