OCA - Oceania Group - retirement villages

[Entrep]

Friend just bought a 500 m2 piece of dirt in Auckland Manukau district for $700k which has a CV of $940k (July 2021) and which had a price tag of $1m beginning of the year.

And there's plenty more sections being released in that area!

When does the bleed stop in your opinion? When rates reverse direction?

[Balance]

When does the bleed stop in your opinion? When rates reverse direction?

Historically the property cycle revolves around 5 years up and 5 years down.

We are but in the first year of the down cycle!

I pick another 2 years of pain.

[BlackPeter]

Incorrect assumption - biggest impact on property prices is the exorbitant price of land which is falling.

Friend just bought a 500 m2 piece of dirt in Auckland Manukau district for $700k which has a CV of $940k (July 2021) and which had a price tag of $1m beginning of the year.

And there are developers and land bankers desperately trying to get rid of land and sections all around the place.

The number of advertisements of mortgagee sale grow month by month.

If you want to make a point you can always find one example to support it. Does not mean, that your point is right.

Say -
Improvements are in average 60% of the total GV (I don't know, but it seems a sensible number and reflects the situation in our area)

Average property: $1m, 400k land and 600k improvements;

The price of improvements currently inflating with 17% p.a.
600k -> 702k


Price of land (nationally) dropping by 10% p.a.
400k -> 360k

702k + 360k = 1062k; Oops.

Results still in an overall price increase at the end of the year, doesn't it?

But sure - we first need to see the hype premium disappear, but then building costs will drive up property value.

On top of that - while you can inflate the price of improvements every year by 17% or more (and this will significantly pump up the total value - exponential growth), you can't really deflate the price of land every year by 10% - otherwise land is quickly worthless and anyway, the price change would soon not be material anymore to the overall price of the property (logarithmic decline).

So - sure, while you always will be able to find some outrageous example, where hype pushed the price for the location into the stratosphere (and hype deflation crashed it down afterwards) - the price for run of the mill sections never was that high, and it won't drop that much either. You still need to buy a section to build a house - remember? Price is a function of supply and demand.

[Balance]

BP - you need to come to Auckland and look at the absurd prices that were being paid for slivers of land around the city.

Try 60% land, 30% construction costs & 10% council charges etc.

[winner69]

If you want to make a point you can always find one example to support it. Does not mean, that your point is right.

Say -
Improvements are in average 60% of the total GV (I don't know, but it seems a sensible number and reflects the situation in our area)

Average property: $1m, 400k land and 600k improvements;

The price of improvements currently inflating with 17% p.a.
600k -> 702k


Price of land (nationally) dropping by 10% p.a.
400k -> 360k

702k + 360k = 1062k; Oops.

Results still in an overall price increase at the end of the year, doesn't it?

But sure - we first need to see the hype premium disappear, but then building costs will drive up property value.

On top of that - while you can inflate the price of improvements every year by 17% or more (and this will significantly pump up the total value - exponential growth), you can't really deflate the price of land every year by 10% - otherwise land is quickly worthless and anyway, the price change would soon not be material anymore to the overall price of the property (logarithmic decline).

So - sure, while you always will be able to find some outrageous example, where hype pushed the price for the location into the stratosphere (and hype deflation crashed it down afterwards) - the price for run of the mill sections never was that high, and it won't drop that much either. You still need to buy a section to build a house - remember? Price is a function of supply and demand.

when we have killed off the suburbs and put rows and rows of high density housing close to the centre of town what will the relative price of 'land' be then?

[BlackPeter]

BP - you need to come to Auckland and look at the absurd prices that were being paid for slivers of land around the city.

Try 60% land, 30% construction costs & 10% council charges etc.

So many reasons not to move to Auckland ... and you just raised another one! Good decision we moved in 1995 to Canterbury!

Still - With the cost mix you are proposing for Auckland overall property price might go a bit lower, but still not by much. Just put it into a spreadsheet and you will see :

Obviously - if all the Aucklanders finally realise that they made a terrible mistake and all of them move at the same time to us ... In this case Auckland prices will crash and our land prices will go up into the stratosphere!

But even then it will balance out on a national level ;

No panic - while a recession might come, I don't expect a house price crash ...

[Bjauck]

So many reasons not to move to Auckland ... and you just raised another one! Good decision we moved in 1995 to Canterbury!

Still - With the cost mix you are proposing for Auckland overall property price might go a bit lower, but still not by much. Just put it into a spreadsheet and you will see :

Obviously - if all the Aucklanders finally realise that they made a terrible mistake and all of them move at the same time to us ... In this case Auckland prices will crash and our land prices will go up into the stratosphere!

But even then it will balance out on a national level ;

No panic - while a recession might come, I don't expect a house price crash ...

No doubt the stock of unsold expensive new houses that Dublin in Ireland experienced won't happen in Auckland....as NZ will open the doors wider for migrants to replace the young Kiwis heading overseas for good jobs and cheaper accommodation.

https://www.irishtimes.com/business/...sold-1.3928592

[Poolboy]

.as NZ will open the doors wider for migrants

The trouble is most migrants who come here are poor people who want the social welfare NZ provides.

[justakiwi]

I assume you have actual facts to back that statement up?

The trouble is most migrants who come here are poor people who want the social welfare NZ provides.

[bottomfeeder]

BP - you need to come to Auckland and look at the absurd prices that were being paid for slivers of land around the city.

Try 60% land, 30% construction costs & 10% council charges etc.

Staistics, statistics and dammn statistics. When I was an accountant, I remember when doing budgets, after a while I started to believe my own figures. Also when valuing businesses, small differences in required rates of return, and various adjustments for size, years in business and other factors, small changes in percentages made large differences in final figures. So subjective to small movements in percentage differences.

Probably why these days valuations always come in a range. Years ago, quotable value started using, for the basis of their valuations the premise that land value continues to go up, and second hand buildings must always depreciate in value, after all land - they are not making any more of it and buildings - they are deteriorating so must be worth less. Then the economics start to change and with lower interest rates other factors become more predominant. It all changes again. But you cant get away from inflationary facts. It just costs so much more to build.

Let us face facts, if the cost of new builds are increasing, then the existing stock of second hand houses must increase in value.There are so many variables which change the premise of value. But one main one is that over history, the value of property has always been increasing, even though there were hiccups on the way. How long they last and what effect they have is very subjective.

But what effect has this on retirement villages. Maybe some time in the past the "value of a licence to occupy" was tied to average house prices in various areas, but that is not set in stone. Retirement villages are becoming a standout investment apart from residential housing, with their own demand curve increasing rapidly. After all what is being sold is not just a residential unit. It has other important variables and factors affecting attractiveness, such as safety, proximity to specialist care, similar people, less requirements for exterior maintenance. Lets face it, I just spend $40,000 on a new roof and next I have to spend $5,000 on new guttering, then I am repainting the interior. I had to spend $700 because the tempering valve in the hot water system is not working correctly. These are costs you dont have with a licence to occupy. Its not just capital cost but costs of maintenance, periodic large items of refurbishment. So I would say retirement villages have a lot going for them and they need not be tied to residential house prices. They will have models all of their own.

Rather I would want my money in something like Oceania that many other investments out there. Dont let me get started on elderly moaning about why they should share in capital gain on licence to occupy units. What is going to happen when they have to make extra contributions for losses in property values, then we will hear the crying and moaning.