SUM - Summerset Group

[winner69]

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Is the price (what new village occupant will pay) of a retirement unit tied in any way to normal property prices .....or is there a special formula used.

I ask because I don't know and don't want to assume anything.

[skid]

For those of you who dismiss the correlation between the housing market and retirement villages as ''conspiracy theories'',Im not saying it will happen here but it was very real in the States.
http://money.usnews.com/money/blogs/...g-market-drops

[Beagle]

Haha, you certainly are a character Mr Tiger. For the record I referenced an RBNZ discussion paper on measuring house prices and an NZ based empirical study on the dynamics between house prices and sales volume.

Based on your comment above I take it you read neither, but giving you the benefit of the doubt that you did in fact read them, and your strong desire to talk about the link between housing and the retirement sector what are your thoughts on both these two papers and how they relate to SUM!

You've clearly been doing your homework which is something I totally respect. I chose asking prices because its a lead indicator of where prices may be heading but obviously medium sales price statistics are the accepted yardstick. One if my clients is the N.Z. general manager of one of the largest Australian owned real estate franchise operators here and is also one of Auckland's top auctioneer's. We discussed the effects on the market shortly after the RBNZ's lending restrictions first came into effect and again late in January this year. The feedback I got was there was definitly a strong initial effect on the market, most especially felt at the first home buyer level along with some trickle down effect through the rest of the market. This has tapered off and the effects of the changes are becoming less pronounced over time. That's the feedback from the coal face I've received, although that's a few weeks old now.
From a lifestyle perspective, (which is what is of primary concern to our older folks), my contention is it makes little difference whether their property takes a little longer to sell or sells for a little less than expectations when there's such a wide gap between the average entry cost to a SUM facility and the sale price of their home.

Let's unpack that a bit. As previously posted we're looking at average sale prices in Auckland of circa $650,000 and SUM are looking to invest $500 million into the Auckland market building 1300 retirement units, as per their press release which equates to an average unit price of $384,615. This leaves an average suplus of circa $265,000 to a couple selling their average Auckland home moving into a SUM facility, quite apart from the caring supportive community benifets they would probably feel as part of the shift, the capital released as part of the process would provide a very nice boost to many people's living standards in their latter years.

I can't see how it would matter to Joe and Jill average whether their house took a little longer to sell or they got a little less for it, how does this translate to lower demand for SUM's units, can you please explain your theory on this ? Surely we are just talking about a potential timing difference ?

The other factor is that Joe and Jill's average home is generally not the sort of home a first home buyer would be looking to acquire so this gives them a degree of insulation from the RBNZ's policies in as much as they are targeted at first home buyers.

My further contention is that most people looking at retirement into a quality retirement facility are attracted mainly based on lifestyle, community care and service facilities, not whether they can free up a specific amount of capital. I think if you talk to most people who have moved to a retirement facility they will tell you the capital liberated from the process is the icing on the cake, rather than the cake itself.

[Bjauck]

Let's unpack that a bit. As previously posted we're looking at average sale prices in Auckland of circa $650,000 and SUM are looking to invest $500 million into the Auckland market building 1300 retirement units, as per their press release which equates to an average unit price of $384,615. This leaves an average suplus of circa $265,000 to a couple selling their average Auckland home moving into a SUM facility,

Would SUM operate on a cost plus basis when selling the licences to occupy on these new units? $384,615 would recoup the cost per unit.

[Beagle]

I believe they stated this was the total cost of the facilities they are building, clearly this includes the cost of community facilities and health care beds which as we know are a seperate revenue stream.
Good point though. With SUM working towards achieving a development margin of 17% this then suggests the average sale price for an independent living unit would be circa $450,000, still leaving Joe and Jill average looking at liberating circa $200,000 extra capital which I think your average couple would really enjoy...

[skid]

You've clearly been doing your homework which is something I totally respect. I chose asking prices because its a lead indicator of where prices may be heading but obviously medium sales price statistics are the accepted yardstick. One if my clients is the N.Z. general manager of one of the largest Australian owned real estate franchise operators here and is also one of Auckland's top auctioneer's. We discussed the effects on the market shortly after the RBNZ's lending restrictions first came into effect and again late in January this year. The feedback I got was there was definitly a strong initial effect on the market, most especially felt at the first home buyer level along with some trickle down effect through the rest of the market. This has tapered off and the effects of the changes are becoming less pronounced over time. That's the feedback from the coal face I've received, although that's a few weeks old now.
From a lifestyle perspective, (which is what is of primary concern to our older folks), my contention is it makes little difference whether their property takes a little longer to sell or sells for a little less than expectations when there's such a wide gap between the average entry cost to a SUM facility and the sale price of their home.

Let's unpack that a bit. As previously posted we're looking at average sale prices in Auckland of circa $650,000 and SUM are looking to invest $500 million into the Auckland market building 1300 retirement units, as per their press release which equates to an average unit price of $384,615. This leaves an average suplus of circa $265,000 to a couple selling their average Auckland home moving into a SUM facility, quite apart from the caring supportive community benifets they would probably feel as part of the shift, the capital released as part of the process would provide a very nice boost to many people's living standards in their latter years.

I can't see how it would matter to Joe and Jill average whether their house took a little longer to sell or they got a little less for it, how does this translate to lower demand for SUM's units, can you please explain your theory on this ? Surely we are just talking about a potential timing difference ?

The other factor is that Joe and Jill's average home is generally not the sort of home a first home buyer would be looking to acquire so this gives them a degree of insulation from the RBNZ's policies in as much as they are targeted at first home buyers.

My further contention is that most people looking at retirement into a quality retirement facility are attracted mainly based on lifestyle, community care and service facilities, not whether they can free up a specific amount of capital. I think if you talk to most people who have moved to a retirement facility they will tell you the capital liberated from the process is the icing on the cake, rather than the cake itself.

I think the point most are making about the correlation in house prices is more of a ''significant drop in house prices''issue.
Its a potential to be taken into consideration.
If things stay the same-or change ''just a bit'' then its business as usual.
The problem arises more if those scarey ''house price to income''theories come about(the damage would most likely happen as a result of some other pretty bad economic influences)
There are dangers with any investment.
I think there are pretty good odds with SUM in this respect but to dismiss anything is not good research.
disc-Im mostly in property from way back so this scenario would not be great for me--Ive got no vested interest in promoting it. DYOR

[Harvey Specter]

I agree with the new guy.

You are not going to use your last dime to move into a village. My guess is that if they get $50k less on their house, they will still make the move as the reason they are doing it isn't financial.

[Harvey Specter]

I can't think of any more compelling evidence than that (and neither could the judge in our case!)

YOu cant get much better than a court approved investment

[Harvey Specter]

Fair enough. Just be aware of paralysis by analysis. i.e. While its critical to DYOR, its also important to realize that no money can be earned until investments are actually made!

From memory, T bought XRO on no analysis when it was cheap so no paralysis back then.

T - are you over complicating things now.

[skid]

Care to explain? The GFC really was the worst economic environment in 80 years, yet RYM managed to post higher underlying profits each year throughout. How can that not be proof enough of the sector's immunity to property "crashes"? What am I missing here??

RYM posted higher profits because in spite of the GFC ,New Zealand house prices did not crash. But the situation was very tense for a while and could have easily gotten out of hand and then there most likely would have been one,even here.
I think alot of people dont realize how close the world economy came to a melt down.
As long as the housing market stays buoyant or has only small dips retirement villages will be sweet.
But they WILL be affected if there is a large correction.
The GFC was the worst economic environment in 80yrs (until another worse one comes along)
Have we really done what is necessary to repair the damage? Or have we just postponed it. That, to me is the big question(that debt bubble scares me)
You have obviously done alot of research under the model of the current housing market and that is valuable information but if the model changes it may be time to rethink.
Im thinking of getting in,but not dismissing the housing markets influence on retirement villages.