Strong retirement unit sales in Auckland push up average prices for new units

Tuesday, 13 August 2019

Strong new retirement unit sales in Auckland have pushed the average sale price to $700,000 at New Zealand's second largest retirement village operator, Summerset.

The average price of a new retirement unit at a Summerset village is $523,000, not including Auckland. Pictured is a lounge in a villa at its Avonhead Retirement Village in Christchurch.

That's 30 per cent higher than the average nationwide price of $540,000 for a new unit this time last year at Summerset's new villages.

Summerset chief executive Julian Cook said the average price was boosted by sales at new retirement villages in Ellerslie and Hobsonville in Auckland in the first half of the year despite the slower Auckland housing market.

'That will just reflect that there's a lot of sales in Auckland and our top two selling villages for new sales were Hobsonville and Ellerslie.

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Summerset chief executive Julian Cook says the property market is a bit tougher but the company was pleased with its underlying profit of $47.8m for the first half of 2019.

'But that can chop and change according to where you are and what's being built at the time,' Cook said.

In the first half of 2019 about 60 per cent of Summerset's new sales were in Auckland and 40 per cent around the rest of the country.

The average Auckland price for new units was considerably higher than the rest of the country at $818,000, at Summerset homes in Ellerslie, Hobsonville, Karaka and Warkworth.

Around the rest of New Zealand the average sale price of a new unit at a Summerset home was $523,000.

The company has 19 villages operating, with about 5300 residents, nine villages under development and 10 proposed.

Recently another large retirement village operator, Oceania Healthcare, reported that its average sale price for new retirement apartments had hit $1 million and that had resulted from substantial sales in the two pricey Auckland suburbs of Browns Bay and Meadowbank.

New Zealand's largest retirement village operator, Ryman Healthcare's average two-bedroom unit price in Auckland is more than $900,000.

The Kenepuru Retirement Village in Wellington is expected to open to residents in November.

Like other large retirement village operators Summerset has a substantial building programme.

It completed 139 new retirement units, mostly villas for independent retirees, in the first six months, and expects to complete 350 by the end of 2019.

Cook said the company had a lot of building work underway around the country and was spending slightly more on construction this year.

Two big retirement villages were well into their construction programme in Casebrook in Christchurch and at Rototuna in Hamilton. The villages were open to residents. At each, the main building which includes about 150 apartments, administration offices, cafe and recreational facilities was under construction and would open in the first half of 2020.

Summerset expected to build an average of 600 units a year in about three years' time. He said that volume was indicative of demand for retirement units.

Summerset's focus was on three new sites opening this year and another three next year. The first units in Avonhead in Christchurch were available in July. The company's new village in Richmond, Nelson, would be open to the first residents in September and Kenepuru in Wellington would be open to residents in November.

The development margin, one of the main ways retirement villages make their money, fell to 28 per cent in the first half of 2019 from 33 per cent in the first half of 2018. The margin is the cost of building the unit and land subtracted from the sale price of the new unit.

'We do expect that margins in the medium-term really will be in that 20-25 per cent range so it's just that starting to flow through,' Cook said.

The property market was a bit tougher and had flattened in Auckland but the company was 'pretty pleased' because its 'underlying profit' (which excludes the increase or decrease in its property values) was higher than the first six months of 2018.

Summerset reported a profit of $92.6m for the first six months of 2019, 4 per cent lower than the first half of 2018, partly because of a smaller increase in the value of its property in 2019.

Its underlying profit, excluding the property value gains, was $47.8m, 6 per cent higher than the first half of 2018.

The company has bought six new sites for village development since the start of the year, in Blenheim, Rangiora, Cambridge, Milldale, Waikanae and Whangarei.