SUM - Summerset Group

[Raz]

Currently 50 people a week make a retirement village their new home,for lifestyle reasons.Most will "meet the market" when it comes to selling their own property.Most will have a good deal of money left over,after buying their retirement unit.
Question time; What will be the number of people making the same decision in ;
1] a year's time.
2] In 5 years time.
3] In 10 years time.

RTM There are a great number of people better "well positioned" than me.
I do realise there are great number of people who do not own their own home, or can ever afford to stop working.They are not RYM or SUM's target market.

I think it will change for the worse gradually. Only a small percentage of the population has/had the awareness,discipline and ability to save a substantial portfolio of investments over and above super (should I also add luck of timing?). The key wealth effect that has assisted people into homes regardless of the property has been those with a company or government pension over and above NZ super. That is at its peak currently with the majority entered/entering retirement. The last ones in a similar plan would now be in their early 50s and they are such a small number that effect will taper off as well as property over time. The timeline is the real question for me.

ps up 15c since buying in again, still layered SL in place..

[Beagle]

I think it will change for the worse gradually. Only a small percentage of the population has/had the awareness,discipline and ability to save a substantial portfolio of investments over and above super (should I also add luck of timing?). The key wealth effect that has assisted people into homes regardless of the property has been those with a company or government pension over and above NZ super. That is at its peak currently with the majority entered/entering retirement. The last ones in a similar plan would now be in their early 50s and they are such a small number that effect will taper off as well as property over time. The timeline is the real question for me.

Agree that its a sad reality that there's a fairly low percentage of the population who have a decent sized nest egg for retirement but why would you think the penetration rate will decline given most people free up capital when they downsize their home moving into a retirement village ? Sure if real estate goes into a sustained decline its a given that some people wanting to move to a village will need to look at an apartment rather than a stand alone condominium but I think there's a gradual growing awareness of the lifestyle benefits these villages offer. A place of peace, tranquility and community support away from the increasing rat race of society in general. I foresee the penetration ate increasing over time and average village unit size decreasing.

Winner69 - $6.00 would make our friend Couta1 very happy...I think he backed up the truck a little while ago.

[Raz]

Agree that its a sad reality that there's a fairly low percentage of the population who have a decent sized nest egg for retirement but why would you think the penetration rate will decline given most people free up capital when they downsize their home moving into a retirement village ? Sure if real estate goes into a sustained decline its a given that some people wanting to move to a village will need to look at an apartment rather than a stand alone condominium but I think there's a gradual growing awareness of the lifestyle benefits these villages offer. A place of peace, tranquility and community support away from the increasing rat race of society in general. I foresee the penetration ate increasing over time and average village unit size decreasing.

Winner69 - $6.00 would make our friend Couta1 very happy...I think he backed up the truck a little while ago.

The problem is not just declining property market but more a question if people can liquidate their properties when they want to. Auckland & Wellington may be the last place to have this problem however the rest of NZ could have this problem relatively quickly. They other places do not have immigration or Government to underpin their local economies.

I guess it really comes down to if you believe we can continue, medium term, currently policy setting (high immigration) and that translates into allowing people to exit out of property in Auckland. I note no party is really offering any alternatives. It may go another election cycle however politically and economically can't see it continuing, as is, for next ten years plus.

[Beagle]

The problem is not just declining property market but more a question if people can liquidate their properties when they want to. Auckland & Wellington may be the last place to have this problem however the rest of NZ could have this problem relatively quickly. They other places do not have immigration or Government to underpin their local economies.

I guess it really comes down to if you believe we can continue, medium term, currently policy setting (high immigration) and that translates into allowing people to exit out of property in Auckland. I note no party is really offering any alternatives. It may go another election cycle however politically and economically can't see it continuing, as is, for next ten years plus.

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 ?

[Lewylewylewy]

Very smart post, Beagle.

[Raz]

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 ?

One would hope they are priced in..that why I just invested!

[Beagle]

One would hope they are priced in..that why I just invested!

Yes I topped up a few more recently too but I am like Oliver Twist with this one !

[Zaphod]

Meanwhile in North America, US car loans are some 13% above the pre-peak 2008 crisis, with total household debt just under 2008 levels while wages have risen much more slowly. Sub-prime lending adverts are rampant on TV and on the street: "Bad credit/Bankruptcy? No problem!" read one banner I saw today. Lenders have become far more comfortable with risk, and the cumulative balance of bad-debt is steadily increasing. Couple all of this with the Trump administration's move to remove many of the lending restrictions imposed by Obama sends shivers down my spine.

The situation here in Canada is somewhat different, but the effects upon the economy by the actions of the southern neighbours are very concerning, even to us NZers.

[Bjauck]

The problem is not just declining property market but more a question if people can liquidate their properties when they want to. Auckland & Wellington may be the last place to have this problem however the rest of NZ could have this problem relatively quickly. They other places do not have immigration or Government to underpin their local economies.

I guess it really comes down to if you believe we can continue, medium term, currently policy setting (high immigration) and that translates into allowing people to exit out of property in Auckland. I note no party is really offering any alternatives. It may go another election cycle however politically and economically can't see it continuing, as is, for next ten years plus.

The high net immigration rate at the moment may be at the top of the cycle, but even if net migration into Auckland reduced to zero now, there must be a lot of pent up demand from those who have put off buying their first home to meet the supply from vendors. There have been large (unrealistic?) price increases from the past several years to act as cushion for any future price drops.

[macduffy]

I'm not sure that big, unrealistic price increases act as a cushion. Wouldn't it be more a case of "the bigger they are, they further they have to fall"? Not that I'm expecting that, given the extent of unmet demand in the (Auckland) market.