In its Professional Investor briefing last week Stockland presented the graphs opposite. The first shows the dramatic undersupply of new housing that commenced in 2008 with the GFC, predicting that by 2014 as a nation we will have 250,000 fewer houses than population/occupancy ratios would require. As the largest residential home builder, this is not a good thing for Stockland.
Even more concerning is that despite declining supply, profit margins are declining as well down to 11% for each dwelling built and sold, compared to 22% 18 months ago (second chart).This is made worse by the fact that Stockland is having to build cheaper, smaller homes to get sales so the profit is 11% on a smaller base. In QLD new Stockland homes package start at $305,000 and top out at $435,000. (This is before a $10,000 cash back style offer).
Then compare this with Chart Three which is the Stockland Retirement development portfolio. The average price for a new ILU is $403,000 and the margin is 17%.
Chart Four is their prediction of demand for retirement village accommodation. Just maintaining a 5% penetration of the 65+ market they forecast an average of 4,700 new village homes will have to be built and sold national every year to2020. They have a land bank of 4,700 blocks of village land to satisfy their share of this demand.
While this year they achieved just a 4.2% return on their investment in the village sector, but they forecast it will exceed 15% within four years.
For the industry, accepting Stockland figures, the new land and construction investment required each and every year to deliver the 5% penetration level is approximately $1.5 billion in funding. That is not available at present via banks so new village starts are falling behind. As villages increasingly become needs based buying decisions people must move to a safer home for ageing and existing ILU prices must rise.
The sudden lift in weekly sales being reported may mean that tipping point has arrived.
