FYI | Jun 16 2006
By Rudi Filapek-Vandyck
The good times are over for property owners in New Zealand, analysts at Credit Suisse suggest. Property prices have been on a sharp rising path for five years, taking real house prices well above trend and rent yields to extreme lows.
Credit Suisse believes there are sufficient reasons to now assume the outlook is for a downturn that will last at least two years, possibly three. Expect house prices to tumble by 10% or more on average over the period.
Don’t expect panic and doom, however, the analysts expect a rather orderly correction. Assume for example, they say, that nominal house prices would fall on average by 1% per annum and the average CPI inflation would be at 2.5% over the next three years. This scenario would deliver a real house price correction in the order of 10%.
No panic required thus.
The forecast correction in the housing sector will also lead to sharp falls in residential investment, forecast to drop by at least 12% over the next twelve months, so all in all the impact on New Zealand’s economy will be a clear negative.
Credit Suisse would expect companies such as Fletcher Building, Steel and Tube, Hirequip and Ryman Healthcare to be negatively affected. The same applies to NZ retailers and other consumer durables exposures such as Fisher and Paykel Appliances and Cavalier Corporation.