SUM - Summerset Group

[Bjauck]

I was very happy to see the bond offer. Remember that debt = profit in real estate, and these guys get a good return on their debt. Also, bonds are a super cheap debt. Good stuff.

I imagine they'll issue more bonds in future, if the demand is there and the rates are still low.

I am confident that the bond issue will be good for SUM at this stage in the market for retirement villages.

NZ residential land is very expensive (using international and affordability gauges) in a currently low interest rate environment.

However Debt can also = negative equity in real estate - so should be used cautiously after such a long run up in residential land values.

[Ggcc]

I am confident that the bond issue will be good for SUM at this stage in the market for retirement villages.

NZ residential land is very expensive (using international and affordability gauges) in a currently low interest rate environment.

However Debt can also = negative equity in real estate - so should be used cautiously after such a long run up in residential land values.

It is quite funny how friends and all people I talk to believe house prices will never retreat. All home owners are claiming over $150,000 in profit and some are leveraging themselves for house extensions as their houses keep going up. In Napier new valuations have gone up considerably and only recently. These people see these new values and consider that they will always sell well above q.v. and that the future only gets better. Flat land itself is over the top expensive, but I am glad that Summerset have purchased a great spot. The question is how much higher can land get and will it go back down to a realistic price? I am sure it is unsustainable to think land will continue to rise at such a fast rate and I am waiting for property values to reduce in all the smaller cities. I hope Summerset are planning what would happen if properties devalued 10-15%

[BlackPeter]

It is quite funny how friends and all people I talk to believe house prices will never retreat. All home owners are claiming over $150,000 in profit and some are leveraging themselves for house extensions as their houses keep going up. In Napier new valuations have gone up considerably and only recently. These people see these new values and consider that they will always sell well above q.v. and that the future only gets better. Flat land itself is over the top expensive, but I am glad that Summerset have purchased a great spot. The question is how much higher can land get and will it go back down to a realistic price? I am sure it is unsustainable to think land will continue to rise at such a fast rate and I am waiting for property values to reduce in all the smaller cities. I hope Summerset are planning what would happen if properties devalued 10-15%

You are right - real estate will certainly not keep going upwards with two digit rises year after year, however - long term it will go upwards. More and more people around needing space and last time I checked they don't make more land (well - Singapore and Holland do, but that's not material). As well - NZ is still a quite desirable place on this globe to live in. Population pressure is on and I don't expect real estate here to go on sale anytime soon.

But you are right - it is certainly unwise if somebody buying real estate now is taking two digit rises every year for granted. Not sure, though where the problem for SUM and other retirement village operators would be if we have a (modest) reduction in real estate prices.

They do need the land to build units which are required - and their clients will buy them no matter whether real estate goes up or down. Worst thing I see is that they could have purchased some land a bit cheaper, if they would have waited, but hey - that's like hedging currencies - you win a bob or you loose one, but it typically does not cost the farm (and wouldn't in this case).

Worst thing I could see for investors is that they might have for some time (couple of years) less outrageous revaluation gains. But than - how bad would this be? As long as SUM and others have a healthy underlying profit (most do) - why would any long term investor worry?

[Beagle]

Good post BP. Latest quarterly Summerset Scene magazine arrived today. Always an enjoyable read. Nice to see the staff getting new stylish uniforms and staff now eligible to win one of a number of $3,000 travel vouchers each quarter in addition to existing staff benefits including health scheme and staff share scheme.

For those who worry about real estate prices flattening out in the likes of Auckland its worth remembering that SUM have just 4 villages at present in Auckland, (plus one in Warkworth, (not sure if this is strictly Auckland or not depends upon your definition), and a further two proposed. Just six out of a total of 30 villages either existing or planned which is just 20% exposure to the Auckland market. When you consider that approx. 30% of Kiwi's live in the greater Auckland area they are actually under represented in this market and therefore offer a truly well diversified portfolio of villages well spread geographically across New Zealand.

I therefore think its the average national real estate price, (for people who like to keep an eye on such things) that's the relevant statistic. SUM investors would have noticed the average national real estate prices have continued to increase very nicely.

[Timesurfer]

It will be interesting to see what happens to national realestate prices if investors decide to dump houses in response to Twyfords lunatic ideals. There might be an opportunity for renters to jump into substandard home ownership (since they aren't allowed to rent them). However, I would imagine this will be short lived opportunity before the market settles down and climbs ever higher. Although I agree that at some point after the boomer bubble we will likely see a return to the 80's duldrums in capital gains.

[Ggcc]

It will be interesting to see what happens to national realestate prices if investors decide to dump houses in response to Twyfords lunatic ideals. There might be an opportunity for renters to jump into substandard home ownership (since they aren't allowed to rent them). However, I would imagine this will be short lived opportunity before the market settles down and climbs ever higher. Although I agree that at some point after the boomer bubble we will likely see a return to the 80's duldrums in capital gains.

We also have to consider a 10-15% drop in house prices when Jacinda introduces capital gains tax after next elections. That is what I think Westpac economists mentioned would happen if capital gains tax was introduced. Which I feel will be linked to the sharemarket and a possible short term (1-2 years) drop in share prices. Especially the retirement sector.

[stoploss]

We also have to consider a 10-15% drop in house prices when Jacinda introduces capital gains tax after next elections. That is what I think Westpac economists mentioned would happen if capital gains tax was introduced. Which I feel will be linked to the sharemarket and a possible short term (1-2 years) drop in share prices. Especially the retirement sector.

https://www.kiwiblog.co.nz/2017/09/h...australia.html

[minimoke]

Divi Reinvestment PLan strike price set at $7.573, including 2% discount

[Beagle]

Divi Reinvestment PLan strike price set at $7.573, including 2% discount

Happy with that and fully subscribed to shares in lieu of dividend. A great way to accumulate more shares cheaply without brokerage.

[Beagle]

Those worried that the Auckland market is in decline might want to read this http://www.sharechat.co.nz/article/8...-in-augusthtml
Labour has already stated that the family home will be exempt from any possible future CGT. I think SUM people, (perhaps currently shut out of the real estate market due to unaffordability) are getting a little over optimistic with their hopes for a 10-15% decline. Besides that if they campaign the next election on the basis of a CGT that's the end of this government's term of "governance"