Summerset feels pinch of slowing housing, construction market

Summerset chairman Rob Campbell. Photo / File

Summerset Group has scaled back its development programme temporarily due to the slowdown in the housing market, particularly in Auckland and Christchurch.

The retirement village operator was quizzed about its development pace by shareholders at its annual meeting in Wellington. One shareholder highlighted that Summerset built 454 units in calendar 2018, slightly more than in the previous year, but sold only 339 new occupation rights, down from 382 the previous year.

Chairman Rob Campbell noted Summerset also resold 301 occupation rights to existing units but acknowledged the market has slowed further this year, negatively affecting the first quarter result.

It sold 137 occupation rights, including 71 new ones, in the March quarter, down from 143 in the March quarter of 2018 when 68 were new.

"Fundamentally, demand remains robust for our product and will continue to grow over time," Campbell told the meeting.

"Although we expect these conditions to continue through this year, we do not expect any material increase in unsold stock numbers."

Summerset shares fell 0.9 per cent to $5.61, and are down about 11.3 per cent this year.

The company had 218 completed but not contracted new units at December 31.

Previously, Summerset has said it wanted to increase its build rate to 600 units a year. Chief executive Julian Cook said the company will probably build only about 350 this year as the company tailors its building programme to meet demand.

Nevertheless, he expects the average over the next two years will be about 500 a year.

One shareholder was particularly concerned about the level of unsold units at a new village, Rototuna on the outskirts of Hamilton, particularly since a nearby Ryman Healthcare village had sold out. That shareholder suggested the company was trying to gloss over a problem area and was "being misleading".

Campbell denied this: "There's absolutely no intention to mislead anyone about any of our villages. Rototuna is no different from any of the villages," he said.

"Experience has shown us that we get a much quicker take-up once we have the main building opened. We still think that will be a very successful village. I've got no concerns about that."

The board receives weekly reports on sales and resales and "we review village by village in a lot of detail".

The first residents moved into Rototuna in July last year.

Cook said the company is still seeing "reasonable" levels of interest for units at its Ellerslie and Hobsonville villages.

Summerset is also seeing capacity constraints on construction in many parts of the country, particularly in Auckland.

"We do not expect the pressure in the construction market to reduce this year. There were a number of construction-related company failures in 2018 and while we have very limited exposure to any of these, we believe 2019 may bring more and Summerset will continue to be vigilant in this area."

Campbell explained that Summerset has its own in-house design and development team and that it mainly experiences such pressures at the sub-contractor level.