Asset value fall threat to property

Property trusts' ability to expand and refinance debt is being hindered by Australian banks raising loan costs and tightening lending criteria, due to the sector's exposure to bad US housing loan debts.

Broker Goldman Sachs JBWere has predicted the banks' new stance will drag their average lending growth back to 8.7% in the current financial year, compared with 25.3% in the past two financial years.

AMP Capital Investors chief economist Shane Oliver believes "good-quality" borrowers would still have access to funding - albeit at higher rates - but that it would be harder for debt-laden property trusts.

"Even though you'd say the underlying assets are of high quality, the quality of the borrowers - the property companies themselves - has probably deteriorated a bit, which is the basic problem for the banks," Dr Oliver said.

"You've got this combination of fewer buyers generally because confidence has subsided, but on top of that, those buyers that can get the finance are having to pay a lot more for it, and are therefore less inclined to pay the sort of yields that it was probably transacting at a year ago."

GPT Group, which earlier this month cut its annual earnings guidance by almost a third, slipped 10 to $1.58, while Centro Property Group fell 2 to 29.5, Stockland was down 10 to $4.69 and Lend Lease fell 21 to $9.71.

Dr Oliver said the combination of the credit crunch, high interest rates and soaring petrol prices had already weighed down the sharemarket's performance, but warned Australia had "yet to see the full impact of that in terms of the property market".

Hans Kunnen, Colonial First State head of investment markets research, said property companies would fare much better if they could generate cash through equity raising, instead of relying on borrowing or asset sales. "If you . have to go to the banks you're going to be captive and are going to have to pay the price, or you don't borrow," he said.

While the primary result of curbed lending was fewer loans on which banks could earn interest, a slowdown in commercial property sales could be among the "second-round effects", Mr Kunnen said.