Finance companies were now seeking a moratorium on paying out capital to investors, as they tried to find ways to survive.
"I suspect that if we see further difficulties in the finance industry, you will see that trend cement in. The last ones to fall over have gone for a moratorium," he said.
The difficulty now was for developers who were in the middle of a project, with funding nearly impossible to find.
Many of the problems emanated from the Auckland market, but there were also problems in Queenstown, Mr Myles said.
Commercial developments were affected to a lesser extent, as projects were often driven by rental flows which propped up the development.
"It is more associated with population shift than the pace of economic growth. Some of that is yet to play out, but the most affected will be residential developments," he said.
Dorchester Finance, which is seeking a deferred payment plan from debenture holders, said it had to take action after its reinvestment rate fell "dramatically".
The company blamed a fast decline in the property finance market and a drop in reinvestment rates for its situation, which was headed towards cashflow problems.
Chairman Barry Graham said the percentage of investors rolling over their investments went from below 20% in May to below 10% in June.
Now, the company hopes debenture holders will approve a plan to defer payment on the principal of maturing investments over two years.
It plans to continue paying interest as normal.
Dorchester Finance's parent, Dorchester Pacific, is a 25% stakeholder in finance company St Laurence, which on Tuesday put lending on hold and sought to pay investors in instalments.
Asked whether Dorchester Finance's problems had been affected by St Laurence, Mr Graham said: "I don't believe they contributed directly."
But he said any problem with a finance company would affect reinvestment rates and confidence.
Dorchester Finance owes debenture holders $168 million against total assets of $212 million, including $18 million in cash.
It also has $8 million in subordinated notes on issue.
Mr Graham expected a proposal would be ready for investors in about three weeks.
Finance company analyst Chris Lee said Dorchester's decision was inevitable given the cross ownership with St Laurence and it was the prudent thing to do, NZPA reported.
It was impossible to manage cashflow with property developers who could not repay or refinance loans, he said.
Dorchester had "chunky" loans in the troubled Queenstown market, but also lent on plant and equipment.
After repaying debt, the company could end up with $10 million to $20 million of shareholder funds, potentially making it attractive for a takeover or reverse listing vehicle, Mr Lee said.
St Laurence general manager of funding and corporate services Helen Mexted said 45% of investors' $240 million in St Laurence had been invested in Australia.
The single biggest loans by dollar value made by St Laurence were for Auckland residential and mixed-use developments in various stages of completion, she said.
The market had become extremely difficult.
"It's an unusual market to be operating in and borrowers are finding it tough. We've got a credit crunch.
"Funding is more difficult to secure and investors have become a lot more cautious," she said.
Mr Myles said once there was systemic failure in an industry, it was very hard to stop.
"For everyone's sake, I hope what we see is the emergence of banks being prepared to be more flexible with their lending.
"They don't want to be at the moment. They are flush with cash and [have] nowhere to lend it."
Finance companies which survived would build bigger and stronger businesses, but that could take several years, he said.
Shares in Dorchester Pacific slumped more than 50% yesterday to 10c from 21c.
They have crashed from a high of $1.75 on June 29 last year.
