Summerset’s Ellerslie retirement village.
Retirement village operator Summerset is upbeat about the coming year, with plans to step up its development work as prices for its homes hold steady even as the wider property market declines.
The housing market boom of 2020 and 2021 drove prices to record highs, but it peaked in late 2021 and prices have plummeted since. National prices were down an annual 13.9% in January and were 16.2% below their peak, the Real Estate Institute’s latest house price index showed.
But retirement village companies like Summerset haven’t been as exposed to the property market’s downturn as retirees were often downsizing from a larger family home, which allowed them to free up capital.
“We haven’t done any price reductions to any of our homes in the last 12 months,” said Summerset chief executive Scott Scoullar. “We didn’t lift any prices in the second half of last year, but we lifted a little bit in the first and the second quarter of last year.”
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The company surpassed 1000 sales agreements for the first time last year and demand remained strong, with 1500 people on waiting lists for a village home, and sales contracts this year over 30% above the same period last year, he said
Summerset has amassed a large land bank for future development, as it expands to cater for an ageing population. It has enough land to more than double the size of its business and plans this year to develop a record 18 villages in New Zealand and its first village in Australia.
In New Zealand last year, the company built 651 units across 12 villages. It expects to build between 625 and 675 units across 10 regions this year but said it will assess conditions over the next six months. It has the largest New Zealand landbank in the sector with capacity for 5224 units.
In Australia, the company has seven sites with capacity to build 2100 units. Civil works are underway for its first retirement village, with the first villas expected to be finished late this year.
David Boyle says there’s no magic number.
“The prospects for us feel good,” Scoullar said. “The outlook looks pretty good for us.”
While the economic conditions appeared to be more challenging, the key thing for Summerset was that it was still seeing very good demand for its homes, he said.
Summerset continued to watch the residential market closely, but believed its pricing remains well placed, with the company’s two bedroom independent units in Auckland cost 83% of the city’s median house price.
In other main centres, the apartments cost 89% of the median price and in regional centres they cost 95% of the median price.
Summerset reported a 51% drop in annual profit on Friday as the value of its property increased by only half the level of the previous year.
The company said net profit fell to $269.1 million in 2022, down from $543.7m in 2021.
The value of the company’s properties lifted by $268.8m, down from the $537.5m record gain the previous year.
The company’s underlying profit, which excludes the impact of unrealised property valuations and is used to determine the dividend payment, increased 21% to $171.4m.
Summerset will pay a final dividend of 11.6 cents, up from 8.6c last year.
Shares in Summerset rose 1.5% to $9.55 in late morning trading on the NZX on Friday.