Westpac embroiled in New Zealand property fall-out

Buenos Aires News.Net
Saturday 6th September, 2008

Australian banking giant Westpac is about to be caught up in a major brawl with apartment investors in New Zealand.

The New Zealand arm of the bank is the major funder of a string of apartment developments in Auckland.

Investors have bought hundreds of apartments marketed through failed housing financier Blue Chip Investments. A number of Kiwi developers sold their apartments through Blue Chip which tacked on a premium to cover guarantees they provided, which secured finance for the apartment purchasers.

Blue Chip is now in liquidation and the guarantees are worthless. The developers however maintain they have binding contracts with the investors and are calling on them to honour their contracts, notwithstanding the value of their units has plummeted. It appears the prices of the apartments were inflated to take account of the premium for the guarantees. If the apartments were re-sold now they would go at much lower prices.

Investors are up in arms and a number have initiated legal challenges. With Blue Chip out of the way their aim is at the developers.

Auckland barrister Paul Dale is launching a High Court challenge on behalf of more than 250 investors. Dale says his clients' contracts are illegal for a number of reasons including that they breached the country's Securities Act and Fair Trading Act.

If Dale is successful and the contracts are thrown out the developers will be left with a glut of apartments unsold and unrented, with price tags well below what they originally sold for. Standing behind the developers is Westpac. The Australian bank has been a major player in the New Zealand property market and has financed a number of developers that did business with Blue Chip.

In one of the developments being challenged, The Barclay in Albert Street, Auckland, which is completed, deposits paid by investors have been frozen while talks are underway with the developer, the Greenstone Group. Westpac is Greenstone's financier.

The Chatham in Pitt Street, Auckland, is also being developed by the Greenstone Group. It only commenced construction this year with Westpac providing the finance.

Other developments where investors have retained Dale include the Bianco on Queen, a twin-tower apartments complex off Queen Street which will be completed early next year. The developer Norwich Enterprises is again financed by Westpac.

Another is Icon Central, a 156-apartment building in St Martins Lane, Auckland, also due to be completed early next year. The developer is Paxton Pacific Group, which is funded by Westpac and Babcock and Brown Real Estate Finance.

Stadium, a 174-apartment building near the Vector Arena in Auckland is also financed by Westpac. The developer is Perron Group.

Individual investors under pressure from the Blue Chip collapse if forced to settle their purchases may be unable to do so. This could result in mortgagee sales. Funders of the individual apartment purchasers include GE Finance and the Australian-based Challenger Financial Services.

New Zealand's Commerce Minister Lianne Dalziel has appealed to the two finance companies not to put the apartments of Blue Chip investors up for mortgagee sale. A spokesman for the minister said she had no power to force them to do anything, but was "appealing to their better nature."

Ms Dalziel reportedly told the two companies that serious allegations had to be addressed concerning Blue Chip's business activities, and that the Serious Fraud Office, and liquidators, Meltzer Mason Heath, were investigating claims which include an allegation that investors were asked to sign blank loan applications.

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