Retirement village firms face pressure

New Zealand’s listed retirement village operators face heightened pressure as cooling house prices and fears a more activist government may win this week’s election threaten to end the companies’ riding on the coat-tails of a pumped up property market.

The Reserve Bank first started noting the risk posed to the wider financial system by rapidly escalating house prices in November 2012, and since the September quarter of that year the CoreLogic house price index has climbed 50.3 per cent. That rise in house prices boosted gains retirement village operators make from reselling occupancy rights to the units, bolstering share prices. The latest data from the Real Estate Institute showed the property market continued to cool with the number of sales across New Zealand sinking 20 per cent last month and the median number of days it took to sell a property increased to 37 from 30.

That dynamic of a cooling housing market and a slower turnaround for sales has weighed on the retirement stocks, and investors are also wary about the growing debate on housing supply and affordability ahead of Saturday’s election, and the uncertainty about a capital gains tax under a Labour-led Government.

Retirement village operators do not currently pay a capital gains tax on the sale of the occupancy rights for the units.

While Labour leader Jacinda Ardern has said its tax working group would look into a capital gains tax and if adopted it would not take effect until after the 2020 election, the Greens say it would be a priority.