LENDER AND BORROWER

New Zealand Herald, Volume LXII, Issue 19062, 6 July 1925, Page 11

LENDER AND BORROWER

VERY SENSITIVE CAPITAL. LOANS FOR LOCAL BODIES. ATTRACTIVE TO INVESTORS. BOROUGHS GET LION'S SHARE. To essay an inquiry upon tho subject of finance in these days of difficulty may be likened to exploratory ventures into a tangled jungle. Oue scrambles blindly in search of well-dcfinod tracks. Occasionally tho way is clear, but bypaths leading to nowhere in particular mislead tho stranger. Chance routes are not a reliable guide, bufc general impressions may be formed from the general trend of the ways. The trouble is that the nature of the money lending business varios tremendously, and oven when an authority is prepared to discuss his own activities his information may bo totally dissimilar to that of his neighbour. And, of course, there is no strong inclination to tell the public everything. Thero is no doubt, however, that thsre is a good deal of "follow my leo,der" in the business of money-lending because capital is sensitive to tho breezes. Tho large number of small lenders respond rapidly to tho influences that guide tho fow larger oies, and very frequently when one asks why this or that occurs, the answer by the authority is "Why?" For instance, it was stated on Saturday that large mortgages upon, say, Queen Street property, were very difficult to negotiate. "Do they fear that the standard of values is not safe ?" was asked. "I do not think so," was the reply. "Do they fear a collapse ?" "No!" "Then why ?" "Yes! Why?" Preference for Bonds and Debentures. One definite conclusion can be drawn, however, from tho inquirios made: thero is a strong tendency to invest in Government. or local body securities rather than in rural land, and, to a certain extent, in citv property as distinct from residential property. It has been constantly argued that if farming is not to receive adequate finance the whole country must eventually suffer, that part of the security of the city is tho production of tho country, and that lending to local authorities will not imSrove the position. From official figures etailing the amount of borrowing by local authorities it is apparent that very littlo of it is being applied to purposes that will develop the rural districts. During tho year 1924 no less a sum than £7,099,901 was authorised to be raised by loan by tho local bodies of the Dominion, of which £2,322.703 was actually raised during tho period. For the quarter ending on March 31, 1925, further loans aggregating £1.143,788 were authorised, and during that quarter £1,049,563 was actually raised. The great bulk of this money represented the activities of boroughs, electric power districts, city and suburban drainago districts, and harbour boards. Detailed figures for the year 1924 are: — Loans Loans authorised. raised. £ £ Counties . . . . 800,995 110.895 Boroughs .. .. 3.7G2,147 1,193.012 Town districts . 104.485 32.215 Road districts . . 128.950 45,800 River districts . . 1f,,575 1,575 Land drainapro districts 49,100 2,057 City and suburban drainage districts . . 312,000 212,00") Electric power districts 1,208.999 406,149 Harbour boards .. 710,050 320,000 Of the loans authorised in the first quarter of this year only £203,363 out of £1,143,788 was for rural purposes, and of the money raised in the same period only £138,549, out of the £1.049,563 was for rural expenditure. " Back Paddock" Neglected. " The fact of the matter," said an authority, "is that tho county ratepayers are so burdened already that they cannot take further responsibility for loans that would improve their roads and give them bridges which would indirectly increase primary production. We are spending money on our front door, upon our lawn and our motor drive but little on the back paddock, "Consider," he continued, "the point of view of the lender who has the choice of State bonds, local body debentures, city property or farm property. He wants a safe investment because he cannot turn himself into a public bonefactor. The local body debenture for instance will return him a certain six per cent., there is no trouble about the collection of tho interest and there must bo a good margin in the rural security, to say nothing of the man behind it, to persuade him to go for the extra half per cent. I speak of the average lender whoso business does not touch the business of farming." It was explained at the same, timo that many large lending institutions had no fixed policy. They were prepared to examine every application and did regular business in freehold rural security, excepting perhaps specified districts where general inflation of values or discouraging propects made it dangerous. This business, however, was usually limited to 50 per cent, of n conservative valuation. Optimists Disillusioned. Many preposterous requests were made because so many farmers who had bought at fabulous prices would not realise that there was no chance <rf getting anything like the amount they wanted. Loans were often asked for amounts to cover mortgages that represented the balance of purchase money, money that never existed except on paper. It- was not the slightest use expecting lending institutions to finance upon such valuations, no matter how great was the need for increased production. At the same time it was the policy of the chief lending houses to nurse farmers to whom they had already lent. It was realised that the best way of dealing with a bad bargain brought about by the slump was to go further than the rules of ordinary business allowed to keep the farmer on the land and prevent abandonment. As to Queen Street securities it was unsafe to accept the commonly quoted standard of £IOOO a foot or anything near that amount. One had to consider, for instance, tho nature of the property —there might be a dozen different values in a single block—the possibility of the business centre of Queen Street shifting, the danger of over-building, etc. It was his opinion that the building of office property had exceeded the demand and great caution had to bo exercised over such mortgages. In regard to suburban shop property his office had foreseen the danger of over-building. In some localities people had "gone mad" on shop building. Ho mentioned these things to indicate the reasons for the wide popularity of local body debentures. At tho same timo ho believed that many boroughs wore spending far too -freely and ho thought that authority for local body loans was much too easily secured.