RNZ's money correspondent Susan Edmunds. Photo: RNZ
Send your questions to susan.edmunds@rnz.co.nz
I am currently selling my house and plan to spend a few months overseas for family reasons, before returning to NZ and buying my next house in a new town. I am mortgage-free. My living costs overseas will be negligible, while I will be paying $100 a month to store my furniture in NZ. I am looking to earn a bit of interest on my house money in the meantime. Are non-bank lenders safe enough to entrust my life savings with, or should I stick with banks? What about Rabobank?
With housing prices relatively flat at the moment and interest rates still relatively high, should I consider investing for longer - say six months - and extending my time overseas, or is there a reasonable risk that house prices could rise again and wipe out my investment gains?
I'll take your questions one at a time.
Rabobank is a bank, so it works under the supervision and capital requirements of the Reserve Bank. Its credit rating is not as high as the mainstream banks (A compared to AA- on Standard & Poors ratings) but this still means that the business has a "strong capacity to meet its financial commitments".
Non-bank lenders don't have the same requirements as banks. They can offer higher returns but that is because you are taking a bit more risk. Take some time to understand what you're investing in, if that's something you are going to pursue.
"Remember the collapse of the finance companies from 2006 onwards, prior to the Global Financial Crisis? There was a reason they were paying interest rates a couple of percentage points higher than the banks and, in fact, they should have been paying considerably higher rates given the levels of risk involved," Infometrics chief forecaster Gareth Kiernan says.
"The disclosure requirements around non-bank financial institutions are a lot greater now, but if you intend to invest with one, you should make sure that you thoroughly understand what their business model is, the degree of diversification of their lending portfolio, and potential fishhooks associated with getting your money out in the future at a time that suits you.
"For example, a non-bank that is heavily or solely exposed to property development could prove problematic at the moment given the weakness in the economy, declining demand for new homes, and the impending drop-off in commercial construction activity. The extra returns on offer don't mean much if you can't get your money out when you want to or, even worse, don't get your money back in full."
He says if you are thinking about investing with mainstream banks but want to reduce the risk, you could spread your money across a few of them.
"You're unlikely to get a better rate for a $1 million deposit than for a $100,000 one. It would also be worth talking to the bank(s) to see if they can offer you a better rate than the carded one, even if it's only by 10 or 20 basis points."
The deposit compensation scheme will take effect from mid-next year, protecting up to $100,000 per customer per financial institution in the event of a failure.
As for your second question, at the moment, expectations are for the housing market to be relatively subdued for the time being.
Kiernan says most drivers are pointing in the wrong direction for price rises - population growth is slowing, unemployment is rising, the economy is weak.
"Given that the stock of homes available for sale is at its highest in nine years, and that there's generally a lag between demand and house sales volumes picking up and house price growth accelerating, the current environment suggests that house prices will remain subdued for at least the next six months.
"Beyond then, my expectation is that house prices will continue to go sideways or slightly up but other forecasters expect more of a pick-up in prices due to improving debt-servicing costs relative to incomes, as mortgage rates come down, with slowing residential construction activity possibly also leading to some undersupply issues.
"Given those uncertainties, I definitely wouldn't bother considering any terms longer than six months, especially given that the six-month rate currently seems to be the best available from the banks. There must be some risk that house prices rally sooner if the Reserve Bank cuts the official cash rate more aggressively than is currently priced in by financial markets."
He says $1m invested for six months at 5.65 percent would give you $19,000 after tax at a 33 percent tax rate.
"The same amount invested for three months at 4.2 percent and then reinvested at the same rate for another three months would return just over $14,000 after tax.
"For the sake of less than $5000, would you rather have the certainty of knowing you can come back to NZ and purchase a new house on your own timing, or are you happy to take the punt that house prices don't go up half a percent over the additional three months? Or put it another way - if the housing market remains relatively weak, you could probably claw back the additional $5000 by bargaining a bit harder on the house you purchase in three to six months' time."
House prices aren't likely to rise again for a while, experts say. (File image) Photo: RNZ
I do our family shopping, however I am aware that a number of staff in supermarkets are employed packing bags for people who order utilising click and collect (which all supermarkets including Pak'nSave offer) or for home delivery (which all supermarkets except Pak'nSave offer). People pay about $10 or $15 for delivery. How can $10 cover the cost of staff receiving the order, manually filling the orders and packing into numerous labelled paper bags, then transporting it to people's homes in the timeframe the people have requested, and then returning back, checking the records and covering reimbursements for mistakes? There is no way that $10 or even $15 is covering these costs, even with the efficiency of working on several individualised orders at once.
All supermarkets are offering this service to some extent, as they are competing for the food shopping market, they are all charging a similar low fee. My question is, as a shopper of food at the supermarket I/we must surely be paying more to cover the unmet cost of this collection and delivery service? It's got to be costing the supermarkets more than the fee they are collecting off the click and collect or delivery customer, and the supermarkets will be recouping this cost somehow? And that is probably via the prices I/we are paying?
You're right that this is something all the supermarkets offer, and to an extent is probably something they now need to do to remain competitive.
Foodstuffs says the efficiency of its operations makes the services viable.
"For click and collect, customers aren't using the checkout, and often buy other items when they come to pick up their orders, which offsets some costs.
"For home delivery, routes are carefully planned to cover the maximum number of orders with the least distance and time. By maximising the efficiency of deliveries, we can keep costs down. Ultimately, we work hard to offer these services while keeping costs manageable for customers."
Consumer NZ head of research and advocacy Gemma Rasmussen says these practices need to be looked at in the bigger picture of supermarket profits.
"We think there's a wider pricing ecosystem with overs and unders. As an example, we know the Commerce Commission's first annual grocery report said retail margin growth should be limited or reduce in a reasonably competitive market, and that's not what the commission found. We think it's fair to assume that the supermarkets are making more than they should, profit-wise."