Talk Money: November 24

  • 24/11/2015
Tony Field (Paul Henry)
Tony Field (Paul Henry)

By Tony Field

Any candid Auckland real estate agent and mortgage advisor will tell you there has been a clear cooling in the Auckland property market.

It is particularly visible in auction rooms. Not so long ago it was standing room only on auction day. Now more and more properties are being turned in unsold.

So it is worth paying attention to a warning from First NZ Capital that the Auckland property market is close to peaking and the chances have increased of a sharp correction.

First NZ Capital's director of economics and strategy Chris Green says the New Zealand housing market appears to be overvalued by around 30-40 per cent.

He has looked back at previous house price booms and come up with three possible scenarios.

The "medium scenario’ would see prices fall 11 per cent from "peak to trough" over about two-and-a-half years up to June 2018.

He says the popular perception that New Zealand house prices never go backwards is wrong.

Green says that major house price upturns tend to be followed by downturns which historically have retraced around 30-50 per cent of the rise.

 

MORTGAGE RATES

The warning about a possible fall in house prices comes as competition is heating up again in the mortgage market.

SBS Bank's 3.99 per cent one-year mortgage is the lowest rate that has been offered in New Zealand in decades.

There are conditions to the offer. The 3.99 per cent rate is for loans of more than $100,000. It is for residential, owner-occupied properties only and it is for customers with a minimum deposit of 20 per cent.

The major banks have not moved to match the rate. But they will be crunching the numbers.

Two-years rates are as low as 5.25 per cent and there are five-year rates of 4.99 per cent on offer.

 

MAJOR MERGER

Drug maker Pfizer is buying botox maker Allergan in a deal valued at a staggering $245 billion NZ.

Like other major pharmaceutical companies Pfizer has been faced with the problem of what to do now that the patent periods are ending for many of its major drugs. Once the patents expire other companies can make cheaper generic alternatives.

So it has been trying to develop new products, partly by buying other companies.

Allergan is based in tax-friendly Ireland. The deal, if approved by the regulators, would mean the new larger company could be based in Ireland. That would mean Pfizer would pay a corporate tax rate of 12.5 per cent rather than 35 per cent.

 

THE DOLLAR

The New Zealand dollar has eased in overnight trading as the American currency hit an 8-month high.

At 8am the Kiwi was trading at 65.16 US cents, down 0.69 per cent from yesterday.

The rise in the American dollar saw gold fall 0.8 per cent, or $8.80, to US$1067 per ounce.

We have been down this road before of course, with talk of a rates hike in the US. But each time the Fed has turned out not to be quite ready to do it.

The Kiwi was sitting at 90.58 Australian cents.It was also trading at 43.07 British pence, 80.04 Yen and 61.35 Euro cents.

 

STOCKS SOAR

New Zealand shares had a record close yesterday, as investors ploughed money into AQ2 Milk Company.

The S&P/NZX 50 index rose 69.1 points, or 1.2 per cent, to 6,077.62.

A2 Milk leapt 11 per cent to a record close of $1.09.

The company has soared 42 per cent in three weeks.

Retirement village operator Ryman Healthcare gained 3.3 per cent to $7.90. It recently announced a 23 per cent increase in first-half profit.

 

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