Originally Posted by
Roger
Certainly abundant supply now on the market. Personally speaking my wife and I feel relieved to have sold 3 Auckland properties last year at the height of the market. I guess the big question if Winston Peter's is going to be kingmaker in the election later this year which I think is looking increasingly likely, what will be his non negotiable points of any political deal. Will we see a dramatic change to the current immigration policy which is bringing in 70,000 people a year at a record rate. What effect on the market with current abundant supply and perhaps as much as a halving of immigration. Throw in higher interest rates and we have a potentially interesting situation.
Speaking with one of my clients who's the GM for one of the major Aussie owned real estate chains and one of Auckland's top auctioneers, he told me people are leaving Auckland in droves, its simply too dear. He thinks a dramatic change to the immigration policy would have a dramatic effect on the finely balanced demand supply equilibrium the market currently enjoys. Genuine potential for a genuine correction in my view.
If that happens, and acknowledging that's by no means certain, what medium term effect do we see in terms of development margin compression, that's the key question in my mind. Certainly those that measure the companies worth by the total measure of profits including revaluations will see much lower profits going forward but I also see underlying profits per unit potentially crimped a little over the medium term. Remember they've been getting premium development margins of just over 20% in a really bullish market where people can sell their homes easily and SUM can ask premium dollars for their new units. Summer / high tide doesn't last forever. That said, all that needs to be balanced with the potential of the company to grow its development profile from 400 units per annum to some larger annual target at some stage. All things considered I suspect this could do a RYM and track sideways for a while and investors will "enjoy" their unimputed <2% dividend yield and little else.