Metlifecare's Sowry sees 'little bit of softening' in property market, no let-up on costs

Monday 27th February 2017

Metlifecare chief executive Glen Sowry says rising property prices that have helped underpin his company's fortunes in recent years are showing signs of slowing, although he doesn't anticipate a drastic downturn.

The Auckland-based retirement village operator's first-half profit was buoyed by a $170.7 million gain in the value of its property portfolio in a market where prices have been rapidly rising over the past two years. That also helped the company reap fatter margins on sales of its units, even as the volume of turnover shrank 13 percent, in part because some units were used to rehouse residents waiting for a replacement apartment block.

Chief executive Glen Sowry told BusinessDesk the property market was a bellwether for incoming residents who want to sell their properties when prices are high when they buy into a village and can pocket some of the capital gain. Metlifecare's units are attracting plenty of demand, with people queuing up to get into its 24 villages, he said. The company's occupancy rate edged up to 97 percent at the Dec. 31 balance date.

"In Auckland and the Bay of Plenty, demand remains strong for our units and certainly for our villages - in many cases, we have many people essentially on a waitlist wanting to get in, and so that's a very healthy dynamic for us," Sowry said. "When we look out into the market, there's a little bit of a softening we're seeing. It doesn't mean prices are coming back, it's just they're not rising as quickly as they were."

Real Estate Institute figures this month showed house prices continued to rise in January, with the national median price was 9.4 percent higher than a year earlier. However, activity was subdued with sales down 15 percent. Fitch Ratings was gloomier about the outlook for New Zealand's property market in a report out this month, saying the country's housing market is in for a "pronounced and overdue slow down" with the pace of house price inflation seen slowing to 5 percent.

Metlifecare's Sowry says a "moderating softening" would be a healthy thing for the economy, although he would prefer to see a gradual slowdown in house price inflation than actual declines in prices.

The retirement village operator still has a big development pipeline, with plans to deliver 229 units and care beds in the current financial year, rising to 233 in 2018. Metlifecare delivered 97 cents beds and units in the six months ended Dec. 31, taking its total number of units to 4,122 and beds to 354 at the balance date. It has a further 1,260 units and 387 beds in its land bank

Sowry said the company has a lot of projects under contract and has to manage costs carefully with a glut of construction driving up prices for developers of all hues.

"There's no evidence or sign of it slowing down and the commercial sector remains strong. There's a lot of activity going on," he said. "We're focused on working with key partners to provide continuity and certainty of workload to negotiate more attractive pricing because it's not speculative."

Metlifecare shares rose 4.6 percent to $5.86.

BusinessDesk.co.nz

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