Property Market Stabilisation | Metlifecare

4 September 2019

​Property markets across Australia & NZ are showing signs of stabilisation, with factors such as lower interest rates, more relaxed regulations by APRA, and a surprise Australian election outcome contributing to positivity. According to ​the latest ​Domain data, Sydney recorded a preliminary auction clearance rate of 80%, from 485 scheduled auctions, while 76% of properties from 718 scheduled auctions in Melbourne sold under the hammer. This time last year, 49% of properties sold in Sydney and 54% in Melbourne.​ This week also saw HSBC in NZ ​confirm a new offer of 3.35% for all fixed terms from one to five years. The rates are effective from today and are easily the lowest in the current mortgage market, and kicks off the Spring real estate season in an aggressive fashion.​

The local focus today ​will be on ​the Reserve Bank​ of Australia's ​policy decision​.​ One sector that has been under pressure from a weaker property market is the retirement villages, such as Metlifecare which we discuss below.

 

Stock in Focus: Metlifecare (MET:NZX)

​​​​​​​​​​​​​​​​​​​​​​​​​​​MET recently released a mixed result, as smaller revaluation gains resulted in a reported net profit after tax of $39.2m, down from -68% from the same corresponding period last year. MET’s underlying result (which excludes unrealised gains on asset valuations) fared a bit better, delivered an underlying net profit after tax of $90.5m, which was up +4% from last year due to increased sales volumes and strong resale margins which was offset by higher construction costs weaken development (new sales) margins.

While margins for development (new sales) are expected to remain challenging due to the property market in Auckland and construction costs at all-time highs, MET announced a significant  reduction in development activity over the near-term delaying projects until costs and margins become more favourable.​

There are a few reasons why MET trades at a discount​ to its NTA (net tangible assets)​, including that it is more concentrated in Auckland where property weakness is potentially a bigger issue, and Metifecare is more of a property pure play given it doesn't provide full-on care like Ryman and Summerset. That said, its valuation discount looks overdone. ​ believes the longer-term outlook remains robust for MET  given the theme of an aging population in New Zealand as the baby boomers enter retirement. 

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​Property markets across Australia & NZ are showing signs of stabilisation, with factors such as lower interest rates, more relaxed regulations by APRA, and a surprise Australian election outcome contributing to positivity.

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