THE New Zealand Herald AND DAILY SOUTHERN CROSS. WEDNESDAY, JULY 25, 1923. FREEHOLD SECURITIES.

New Zealand Herald, Volume LX, Issue 18460, 25 July 1923, Page 8

THE New Zealand Herald AND DAILY SOUTHERN CROSS. WEDNESDAY, JULY 25, 1923. FREEHOLD SECURITIES.

The much discussed and highly important question of land values in New Zealand has been given an entirely new orientation by a casual observation in Parliament and its amplification by an important financial institution. Upon the presentation of a formal document, the Leader of the Opposition asked a question regarding loans on freehold securities by the Australian Mutual Provident Society. The Prime Minister's reply apparently did not accurately express the policy of the society it has been set forth by the manager for New Zealand in the following terms: —, ; '

1 When land is released from some of the burdens it now carries and values thus become stabilised at a safe level, the society will, when it has money available, continue its settled policy of lending to the producer, from whom it- obtains so large a proportion of its assurance business. The society ■■ is bound to consider "safety first" in investing its policyholders' money, and what sane man would say that land mortgages are as safe at the present time as loans to local bodies? This must be regarded as a statement of considered policy, and in view ;of ; the extent of the society's lending operations, it contains implications of the gravest significance. : In the most arresting manner it emphasises the fact that land values cannot be determined without consulting those to whom agriculture looks for the financing of its operations. -This aspect of the question was given some prominence when the Government proposed to make advances up to 75 per cent, of "the valuation. The first impression that this was a hazardous undertaking was modified when it was realised that the basis was not a controversial value, but a specific valuation by, the lending authority.

The A.M.P. Society goes further. I It declares, indirectly, that it cannot lend money on rural securities until values become stabilised a.t a safe level. It is regrettable that Mr. Amies did not explain the views of his society, more fully, for the simple statement of ■; its conclusions does not reveal the reasons which led to them. It may, however, be possible to discover them. In the first: place it is inconceivable that an institution of such wide experience intends to condemn all rural land as overvalued. / It is agreed that the speculation and consequent inflation of market prices have been confined to a small proportion of the farms in New Zealand, and the purpose of the warnings issued by Sir George Elliot, Sir Harold Beauchamp and others, and frequent}* repeated by this journal since the first signs of the boom appeared has been to persuade farmers of the folly of inflating the prices of land. The A.M.P. .Society knows that many farmers, probably the majority, have kept their heads and their farms during the whole period of excitement, and that these properties offer security for loans at least as safe as they ever did. No intelligent observer would- expect a financial institution to lend its funds on the security of farms laden with mortgages inherited from the boom; such cases form a problem of which the solution must be found elsewhere, # What then does the A.M.P. Society mean when it says that land mortgages are not "safe" at the present time—or not as safe as local bedy debentures? As in the ' case of the State Advances Department, the society makes its own valuation of tho#security offered for a loan,, and should be able to be indifferent to popular misconceptions of land values. That it cannot, apparently, adopt that attitude can have only one explanation—that applicants for loans will not accept the society's valuations. A similar position has been revealed in criticism of the State Advances Department, and if this is the true interpretation of Mr. Amies' state ment, the conclusion is reached that a representative lending institution is in conflict with borrowers in regard to the values of land. Landowners, whether long-established or reoent purchasers, have accepted a high standard of values, and that conception shapes their mental attitude when they approach lenders for financial assistance. If the A.M.P. Society's view is representative—as there is reason to believe it is— I the lenders have revolted.

It is easier to diagnose the condition than to propose remedies. Manifestly, [means;;■' must ::.' He found for. its amelioration, for. grave consequences would quickly ensue 'from the proscription of rural securities by the A.M.P. Society and byother - institutions* thait. "would be influenced by its example if they have not already ;.- ; reached i: similar ; decisions. The object must be to restore confidence in broad acres as the, most solid and safest form of in-

vestment. : Since the lender has an incontestable right to value the security, the borrower must adapt his; views of values to the farmer's opinion. : The ; difficulty is not the state of land, but the state of mind ; values are not being maintained by new sales, but by the' refusal of holders to recognise the facts and acknowledge their mistakes. This I being so, the remedies may appear !in indirect influences. The A.M.P. ! Society's statement ; must have a salutary effect. Another general pronouncement regarding values will be given by the Government's proposals in regard to discharged soldiers' farms, which probably form the greater proportion of the laud to which the term inflated values may properly be applied. These are scattered -■•■ throughout the Dominion, and whatever action is taken in . regard to them must strongly influence opinion in their neighbourhood. In the same way, valuations for State advances will materially assist in setting a new standard of values. . These are factors of wide operation that should in combination go a long way toward that stabilisation of values which is so urgently necessary to correct the mischievous effects upon farmers and financiers of the boom period's hysteria. It is almost unnecessary to emphasise the importance to the country of these ameliorative influences becoming operative. • Mr. Amies challenges any sane man to say that land mort-

gages are as safe at the present time as loans to local bodies. Provided that the margin of security is sufficient, they are as safe as any other security. That they are not regarded with favour— is useless to challenge the fact of their neglect due to the inadequacy of the margin of security,, or in other words, investors' doubt as to the farmers' ability to pay their way. But if the country is to progress and be prosperous, the gulf between loans and land must be bridged, so that money will be-freely available to meet the legitimate needs of farmers. Unless this can be accomrjlished, investors who have sought safety in looal body debentures may meet with grave disappointment, for "it is obvious that unless the land of New 'Zealand is farmed, and profitably farmed, the debentures of local bodies cannot maintain their value.