Property, investment, banking experts and providers all largely agree that despite the continued growth of New Zealand’s retirement village sector, there are some red flags on the horizon.
At the recent Retirement Villages Association (RVA) conference in Sydney, RVA Executive President Graham Wilkinson said that although the industry’s growth has been “sensational”, it was probably entering a “dangerous time”.
These views are supported by experts in the property, investment and banking fields. According to leading commercial real estate company CBRE New Zealand’s 2017 first-quarter New Zealand Retirement Village Construction Activity Update, the future supply of retirement units is tracking towards “historical highs” – although it warns that this is subject to multiple factors, including competition, local residential property market trends, developers’ ability to access equity and secure suitable land, and escalating construction costs.
Importantly, CBRE notes that the sector’s ongoing success relies on a “continued acceptance of the end product”.
First NZ Capital research analyst Arie Dekker agrees.
“The baby boomers represent a significant opportunity,” he notes in a a Credit Suisse report on the sector published March 2017, “but may also test some of the status quo dynamics that make the sector attractive – appetite for product being built as it ages and to contract terms will be important.
“It is difficult for operators to second guess how this plays out, instead focusing on their existing offering and opportunities.”
Dekker also notes that greater competition in a geographic location introduces risks to less attractive villages that could test assumptions underpinning value.
Ultimately, Dekker describes the sector as being “on a golden run” following a period of strong growth in assets from a low case and operators having settled on a development model that is “very value-accretive” owing to market acceptance.
At the recent Retirement Villages Association (RVA) conference in Sydney, there was strong confidence among providers of the ORA/DMF model. While it has been slow to gain traction in other countries, the model is well engrained in New Zealand’s RV industry and supported by legislation and the RVA’s professionalism.
However, in JLL’s most recent New Zealand Retirement Village Database, Angela Webster lists negative publicity around the ORA as one of the key risks. Other risks she identifies are oversupply in the Auckland region, the holding costs of land banking and miscalculations in location and capital investment decisions, and risks from the general housing market affecting potential village residents’ equity holdings.
Last year, ANZ’s Richard Hinchcliffe speculated that the sector could potentially face competition from the home care sector, but this hasn’t transpired yet. In Australia, thanks to a much healthier funding arrangement under the consumer-directed care model, home care is starting to flourish – meanwhile New Zealand’s home care sector is struggling and poses no immediate threat to the RV sector.
Hinchcliffe spoke at the RVA conference of the “perfect storm” for the industry, owing to a strong economy and the ripple effect of Auckland’s booming residential property market.
However, he warned of the possibility of interventions leading to dampened house prices and the need for operators to differentiate their product.
This was a view held by many at the conference: the importance of evolving and adapting to the market conditions and to what consumers want.
“If you’re not adapting your product, you won’t be part of this industry in 15 years,” industry veteran Cliff Cook told delegates.
“Evolution is important,” agreed Norah Barlow, “If you’re not talking about it, you’re not going to survive.”