OCA - Oceania Group - retirement villages

[Beagle]

Really only 4 years seeing as we were in lockdown last April. Important to spot the nuances and trend though. This is what they has to say about volumes sold for March 2021 in their previous monthly report.
“The number of properties sold in March was the highest
we’ve seen for a March month in 14 years (March 2007),
with 2,313 more properties sold when compared to March
2020 –

[winner69]

Beagle - where’s Bindy gone

[BlackPeter]

Really only 4 years seeing as we were in lockdown last April. Important to spot the nuances and trend though. This is what they has to say about volumes sold for March 2021 in their previous monthly report.
“The number of properties sold in March was the highest
we’ve seen for a March month in 14 years (March 2007),
with 2,313 more properties sold when compared to March
2020 –

The problem with some beagles is that they tend to not let go of the trousers they sunk their teeth into ... which might obscure their view for the bigger picture :

Anyway - if I look at the real estate market .. as long as NZ proves unable (we do) to produce enough houses to house our population, there is in my view only one direction for housing prices, and this is up. Obviously - if you trust the Kiwi build program and expect a huge deluge of high quality houses dropping out of some politicians fantasies right into the market, then yes, better be careful - one of the suddenly appearing houses might squash people ; I think however, the risk is low ...

The other thing is - while the real estate market clearly has a big impact on the value of retirement villages, it is not the only parameter. The number of old people in need for care is increasing - and so is the demand for high quality age care. This is a market as well controlled by supply and demand. Whether the better off clients pay at the end of the day with the increased value of their house or with the increased value of their share portfolio does not really matter, doesn't it?

From a personal view I think you might want to look for some other pair of trousers (but the real estate prayer mill) to sink your teeth into. These trousers look already pretty torn apart.

[Beagle]

Hey Beagle, are you clients giving you an indication of where the residential property money will go after they sell? Stocks or commercial property?

BTW- good to have you back. Your posts are of much value.

Thanks for your kind words, much appreciated. I act for a number of small investors, mostly Mum's and Dad's with one or two rental properties and a couple of professional investors with multiple rentals. Most have built their wealth using a fair chunk of borrowed funds and if they are not able to claim the mortgage interest as being tax deductible then they're paying tax on profit they didn't actually make. Typically this might add something like $6,000 per annum per property to their costs.

Over the long run many properties go through a cycle of what I call "deep cycle" maintenance that many investors without proper advice don't budget for. It can costs tens of thousands every 7-10 years to keep a property looking fresh with new paint inside and out and replacement carpets, drapes, lino and that's without budgeting for modernizing bathrooms and kitchens which can get dated fairly quickly. When you factor in deep cycle maintenance as well as other far more regular maintenance, ever increasing rates and insurance and assuming interest costs were deductible many properties are cash flow negative already...(and that assumes no untoward major disasters like methamphetamine contamination and leaky buildings of which I have seen countless examples).

From a property investors perspective what they're telling me is that this change to non deductibility of mortgage interest is an egregious breech of trust and breaks a fundamental principle of business costs tax deductibility that goes back over 100 years. Many people are extremely upset about this and the thrust of many discussions has been how do I got about getting my property(s) back to a cash flow positive situation. To be honest I haven't had a single conversation about where else to invest the money YET. There's a 4 year phased transition so many investors are sitting nervously on their hands at present and hoping the effect is minimal.

I am advising some investors with multiple properties to sell as many properties as needed to eliminate debt altogether. Others will simply give up in due course because its simply too hard...like many I have seen give up before when lumbered with a massive meth contamination clean-up or a major water ingress problem.

My role is to help my clients, not wait for many months of a confirmed downtrend and then call it. I'm telling clients I think this change is a game-changer and its likely the tide has turned. Very few people invest in residential property for the yield, most are chasing tax free capital gains.

Better sheet all this back to OCA which I estimate will have a NAV of about $1.30 as at balance date. The share price is well supported by hard assets and work in progress and the yield on OCA is probably better than your average rental property (after all expenses including deep cycle maintenance) and future gains will hopefully stay being tax free and not subject to a Brightline test so this is probably better than residential property. I prefer the lower care business model of SUM but their shares are a little expensive for me on a forward PE basis at present and certainly nowhere near NTA.

[Beagle]

Beagle - where’s Bindy gone

https://www.procare.co.nz/news/2021/...bindi-norwell/

[Beagle]

The problem with some beagles is that they tend to not let go of the trousers they sunk their teeth into ... which might obscure their view for the bigger picture :

Anyway - if I look at the real estate market .. as long as NZ proves unable (we do) to produce enough houses to house our population, there is in my view only one direction for housing prices, and this is up. Obviously - if you trust the Kiwi build program and expect a huge deluge of high quality houses dropping out of some politicians fantasies right into the market, then yes, better be careful - one of the suddenly appearing houses might squash people ; I think however, the risk is low ...

The other thing is - while the real estate market clearly has a big impact on the value of retirement villages, it is not the only parameter. The number of old people in need for care is increasing - and so is the demand for high quality age care. This is a market as well controlled by supply and demand. Whether the better off clients pay at the end of the day with the increased value of their house or with the increased value of their share portfolio does not really matter, doesn't it?

From a personal view I think you might want to look for some other pair of trousers (but the real estate prayer mill) to sink your teeth into. These trousers look already pretty torn apart.

I hear ya. Need to find something new to chew on https://www.bing.com/images/search?v...26pid%3DImgRaw

Other non listed operators are expanding fast too. e.g. http://www.cht.co.nz/locations-v3/

[BlackPeter]

Thanks for your kind words, much appreciated. I act for a number of small investors, mostly Mum's and Dad's with one or two rental properties and a couple of professional investors with multiple rentals. Most have built their wealth using a fair chunk of borrowed funds and if they are not able to claim the mortgage interest as being tax deductible then they're paying tax on profit they didn't actually make. Typically this might add something like $6,000 per annum per property to their costs.

Over the long run many properties go through a cycle of what I call "deep cycle" maintenance that many investors without proper advice don't budget for. It can costs tens of thousands every 7-10 years to keep a property looking fresh with new paint inside and out and replacement carpets, drapes, lino and that's without budgeting for modernizing bathrooms and kitchens which can get dated fairly quickly. When you factor in deep cycle maintenance as well as other far more regular maintenance, ever increasing rates and insurance and assuming interest costs were deductible many properties are cash flow negative already...(and that assumes no untoward major disasters like methamphetamine contamination and leaky buildings of which I have seen countless examples).

From a property investors perspective what they're telling me is that this change to non deductibility of mortgage interest is an egregious breech of trust and breaks a fundamental principle of business costs tax deductibility that goes back over 100 years. Many people are extremely upset about this and the thrust of many discussions has been how do I got about getting my property(s) back to a cash flow positive situation. To be honest I haven't had a single conversation about where else to invest the money YET. There's a 4 year phased transition so many investors are sitting nervously on their hands at present and hoping the effect is minimal.

I am advising some investors with multiple properties to sell as many properties as needed to eliminate debt altogether. Others will simply give up in due course because its simply too hard...like many I have seen give up before when lumbered with a massive meth contamination clean-up or a major water ingress problem.

My role is to help my clients, not wait for many months of a confirmed downtrend and then call it. I'm telling clients I think this change is a game-changer and its likely the tide has turned. Very few people invest in residential property for the yield, most are chasing tax free capital gains.

Better sheet all this back to OCA which I estimate will have a NAV of about $1.30 as at balance date. The share price is well supported by hard assets and work in progress and the yield on OCA is probably better than your average rental property (after all expenses including deep cycle maintenance) and future gains will hopefully stay being tax free and not subject to a Brightline test so this is probably better than residential property. I prefer the lower care business model of SUM but their shares are a little expensive for me on a forward PE basis at present and certainly nowhere near NTA.

Good post - though not really OCA relevant ... but I do share your view on the unfairness of the tax change. A quite shocking and dishonest decision and clearly not good for the economy which needs investors being able to trust into government decisions.

Back to OCA - if rental property thanks to the cleverness of our current gummit not anymore delivers an appropriate return, then maybe all these landlords are going to move their money into the share market and buy OCA shares - hey, this might be good for the share price

[winner69]

https://www.procare.co.nz/news/2021/...bindi-norwell/

Thanks

Good on her ...much more rewarding role than looking after (description) real estate agents

[artemis]

Good post - though not really OCA relevant ... but I do share your view on the unfairness of the tax change. A quite shocking and dishonest decision and clearly not good for the economy which needs investors being able to trust into government decisions.

Back to OCA - if rental property thanks to the cleverness of our current gummit not anymore delivers an appropriate return, then maybe all these landlords are going to move their money into the share market and buy OCA shares - hey, this might be good for the share price

Agree, most probably going to be a lot of dosh looking for a home. The costs, rules, fines, hassles and compliance around rentals were already serious discouragements, and the interest deduction will be the final straw for some. Doesn't take many rental owners selling a property or two to release a lot of money.

[Cyclical]

Some good discussion in the last page or two, with Beagle chucking a bone in the mix, like he does lol.

Personally I reckon the residential property market had about peaked out anyway...there has been a big uptick in the last year or so, which to my mind is primarily due to the increase in serviceability due to lower interest rates, plus the brakes came off after a period of nervousness around CGT, with Cindy saying "not happening under my watch", combined with the removal or reduction in the LVR requirements, and then maybe there has been some positive immigration with peeps flooding home (negligible?)...all these things created the perfect storm. And meanwhile everyone forgets that these things operate in cycles and that my parents bought their first place in the '70s for about $15k, and that on average, NZ property increases a few percent per annum blah blah.

Anyway, the powers that be decided that none of that stuff mattered, none of it was their fault, that it was different this time and the fault lay squarely at the foot of those blood sucking landlords. Yes, let's point the finger at them, whip up a storm in the press, and before this crazy market shows any sign of cooling, let's slap in a sweet little tax grab or two. What a master stroke.

Anyway, the odd landlord I've spoken to don't actually seem to understand the implications...let's hope they have a Beagle to spell it out. I guess the penny will drop over the next couple of years or so. Some will sink. Those that manage to get their places cash flow neutral/positive/not too negative, after tax, will be ok. Can't really see the outcome being favorable for renters. Anyway, the exodus of landlords is not going to be instantaneous.

As for the RV sector? My main concern is what the socialists will roll out next, probably without consultation.

Disc. Holding about 15% of what I had 2 months ago.