PROPERTY values in the retirement village sector are headed for a major correction. According to CB Richard Ellis, secondary stock values have fallen by as much as 30% since Christmas.
At CBRE’s annual Mortgage Industry Forum in
According to Bruce Clark, the retirement village sector has been one of the most active sectors of the property market in recent years, with 11 major portfolio transactions in 2006 and 2007
“However, following two years of unprecedented transaction activity across
“The market is adjusting to rising interest rates and higher credit costs and price adjustments could be expected in the next round of retirement village valuations as yields and discount rates came under pressure,” he added.
Bruce-Clark said rising borrowing costs may potentially reduce profitability for a large number of retirement village operators, thus putting downward pressure on values.
He noted that whilst no “1st tier” retirement assets had traded this year, which had made it difficult to assess the impact of the current market conditions on retirement village prices — negotiations on secondary stock had seen pricing points drop by as much as 30% since Christmas.
“Whilst this may seem extreme and the exception as opposed to the rule, it’s certainly an indicator as to the current sentiment in the market.
“The knock on effect of these rising borrowing costs and reduced profitability is a risk re-rating, which will see discount rates rising to reflect the above financial pressures and volatile market,” ,” Bruce-Clarke said. “The resultant reduced values will place extra pressure on financiers, who will in turn have to closely monitor or reduce loan-to-value ratios to counter the changing market conditions,”
He urged financiers to look at various key performance indicators when looking at lending against retirement assets.
- The quality and the age of the individual village or portfolio
- The quality of management in place
- The level of vacant stock in the village or portfolio
- The pricing and condition of the vacant stock
- The nature of the DMF structure in place
- The demographic characteristics and condition of the market in the catchment area.
“We now find ourselves in interesting economic times that will no doubt have an impact on all asset classes.
“In the retirement village sector, the fundamentals remained strong, given the sector’s stable, long-term cash flows, the influences of an ageing population and a general undersupply of retirement village stock,” Bruce-Clarke continued.
“But whist the fundamentals remains strong, the term Caveat Emptor comes to mind when considering the current climate.
“Whilst this means buyer beware, I suggest financiers also proceed with great caution,” he concluded.
Australian Property Journal
