Originally Posted by
Beagle
Spoke with the GM of one of the major Australian owned franchises this week. brief synopsis :- Big volume drop's for sure, some franchisees are going to need to change their prolific spending habits. People finding it a lot harder to get bank finance. Seeing a reversion to traditional marketing methods, (setting an asking price, surely something refreshing for potential home buyers ?) and a trend away from auctions / tenders. Immigration level's supporting demand.
Agree with you that long term the current immigration level's appear uncomfortable for the N.Z. economy in terms of pressure on infrastructure, (Auckland roads in particular) but also hospitals / schools... right across the board really.
At a national level I don't foresee any material house price declines coming in the foreseeable future. I'd be surprised if prices didn't move up at least in line with inflation. Auckland's market will continue to be supported by extremely high level's of immigration for some time. My crystal ball thinking is that Auckland's medium prices are likely to be sideways in numerical terms for some time, (i.e. a very slow drop in inflation adjusted terms), but your guess or anyone else's is just as good as mine.
In terms of SUM, it will be interesting to see how their development margins are tracking on 15 August as (as we all know), that's how they make most of their money. Companies recent guidance and comments at the annual meeting suggest margins are fine. Resale's are going according to my model and on higher embedded values so all seems to be tracking well. 2017 PE of 14 continues to seem dirt cheap for a proven performer like SUM especially given the long term demographic tailwinds this sector enjoys. (Some commentators think the average forward PE for the NZX50 is just over 20).
One suspects the real estate risks are fully priced in at this level and perhaps the market is ignoring the potential advantage of a real estate correction ? (Bare land has traditionally had a very high Beta coefficient and drops more than houses in a correction). Is SUM giving itself very broad financial capability with recent debt raising to position itself to take advantage of cheaper potential land acquisitions on a significant scale ? Gearing up for more growth perhaps ?