RYM-Ryman

[KW]

Question is just - why do we assume that the property market will keep going down while the building costs keep going up? Sure, there might be ripples, but this does not makes sense in the long term given that it just would mean people stop building new houses and buy instead from existing stock, which means that the existing stock will get more demand, which will push up prices up for existing stock until it reaches the prices for building new again.

I expect that property market will quite quickly re-synchronise with the prices for building new houses. 

While building costs have gone up, its land prices that have gone up more.  Land prices can come down faster than building costs go up, thereby making property cheaper over time.  Since you arent even buying the land in retirement units, its going to be harder to justify keeping prices high while the prices of established housing falls.

[KW]

Interesting comments from Craigs, thanks for sharing.
Looks like RYM have snookered themselves with their high debt.

Its cashflow that always, always, always brings property developers undone.  They over commit during the boom to more and bigger projects, relying on the cashflow from completed projects to partially fund the new builds, and cover the difference with debt.  The problem comes when the completed projects stop selling and the cashflow dries up.  The debt is still there and its getting more expensive.  Eventually the subbies down tools because they are not being paid, and the whole house of cards collapses.  And don't think it doesnt happen to big developers - only need to look across the ditch at Metricon to see how a giant can quickly come undone.
I'm watching one Chch developer go from building standalone houses, to small townhouse developments, to bigger townhouse developments, and now to one that consists of 61 townhouses on a single site.  When their cashflow dries up and that huge project stalls due to lack of funds, what happens to the company? 
If you know anyone who has their money in those development company funds (like Williams/DuVal etc) you need to tell them to get it out now.  Its only a matter of time, and the clock is ticking ever closer to midnight.

[Whacc]

September last year Ryman appointed a grocer / retailer as CEO ....one Richard Umbers

...

Share price when Umbers started was about $15 .......now half tha..market cap down more than $3 billion ...wow

Not all poor Umbers doing ....maybe it's just Umbers is one of those unlucky leaders .....always dogged by ill fortune ...like his past careers.
 

I don't think you can blame him at all, this all goes back on the previous guy in the chair.

These businesses are like cruise liners, what you're seeing today is the manifestation of decisions made 4-5 years ago.

I'm aware of Umbers' arguably chequered past, but if anything the decisions being made now show the business is finally seeing some sense (albiet only after this come-to-hesus moment).

[Gerald]

Looks pretty dire eh?

You cannot view this attachment.

[kasper]

Looks pretty dire eh?

You cannot view this attachment.

Looks like a perfect time to buy to me.(Two men looked out through prison bars one evening, one saw mud and one saw stars)

[Basil]

I don't think you can blame him at all, this all goes back on the previous guy in the chair.

These businesses are like cruise liners, what you're seeing today is the manifestation of decisions made 4-5 years ago.

I'm aware of Umbers' arguably chequered past, but if anything the decisions being made now show the business is finally seeing some sense (albiet only after this come-to-hesus moment).

Small ineffective rudders on a big cruise ship...hmmm...reminds me of the Titanic...hope there's no icebergs really close lol

The trouble with referencing past low data points such as low points in the price to NTA ratio in 2003 and 2009 is that you're comparing two very different points in time and market dynamics.
SUM, ARV and OCA didn't even exist as listed companies then and RYM had the legend Simon Challis at the helm.
There was not the glut of supply of units on the market there is now.  People forget that MET have massive plans for expansion too and about $5 Billion of assets.  RYM's gearing was much lower back then and they had tremendous capacity to grow, that's clearly not the case now with their obvious financial constraints.  The market is now very different.

By comparison SUM have much lower gearing, a better track record of growth since they listed in 2011 and generally speaking their units are at a considerably lower price point providing more resiliency to their business model in a downturn.  They also have a much lower care component to their business.  I believe they are highly likely to continue to outperform RYM in the years ahead.  That said I don't presently own and wouldn't own anything in this sector in the near future.  With rampant cost increases and a falling market I feel the sector is presently on a hiding to nothing.

[kasper]

Small ineffective rudders on a big cruise ship...hmmm...reminds me of the Titanic...hope there's no icebergs really close lol
The trouble with referencing past low data points such as low points in the price to NTA ratio in 2003 and 2009 is that you're comparing two very different points in time and market dynamics.
SUM, ARV and OCA didn't even exist as listed companies then and RYM had the legend Simon Challis at the helm.
There was not the glut of supply of units on the market there is now.
RYM's gearing was much lower then and they had tremendous capacity to grow, that's not the case now with their obvious financial constraints.

The market is now very different.  The plain fact is there are icebergs around that weren't there in the past.

By comparison SUM have much lower gearing, a better track record of growth since they listed in 2011 and generally speaking their units are at a considerably lower price point providing more resiliency to their business model in a downturn.  They also have a much lower care component to their business model and finally, I believe they are trading quite close to their current NTA, (we'll have to wait until late February 2023 to know what that figure is).
I believe they are highly likely to continue to outperform RYM in the years ahead.  That said I don't presently own and wouldn't own anything in this sector in the near future.  With rampant cost increases and a falling market I feel the sector is presently on a hiding to nothing.

Captain Edward Smith says full steam ahead.

[Basil]

Captain Edward Smith says full steam ahead.

Take her to sea Mr Murdoch, lets stretch her legs
https://www.youtube.com/watch?v=ytexQ5AxDig 
What could possibly go wrong 

Winner, Presentation I read had NTA at $7.135.  Its now under that at $7.13 only one day after I called it.  That doesn't bode well for the future. 
Hands up all those who want to catch a falling knife ?

[winner (n)]

Take her to sea Mr Murdoch, lets stretch her legs
https://www.youtube.com/watch?v=ytexQ5AxDig 
What could possibly go wrong 

Winner, Presentation I read had NTA at $7.135.  Its now under that at $7.13 only one day after I called it.  That doesn't bode well for the future. 
Hands up all those who want to catch a falling knife ?

Yep NTA is $.13 and Book Value is $7.26

Thay have a bit of Goodwill on the books

[Shareguy]

Under $7 gosh.

[kasper]

Under $7 gosh.

Gosh even the low target price on 4 traders is $7.87 and the avg is $10.66, massive overreaction one would think.

[Basil]

Its cashflow that always, always, always brings property developers undone.  They over commit during the boom to more and bigger projects, relying on the cashflow from completed projects to partially fund the new builds, and cover the difference with debt.  The problem comes when the completed projects stop selling and the cashflow dries up.  The debt is still there and its getting more expensive.  Eventually the subbies down tools because they are not being paid, and the whole house of cards collapses.  And don't think it doesnt happen to big developers - only need to look across the ditch at Metricon to see how a giant can quickly come undone.
I'm watching one Chch developer go from building standalone houses, to small townhouse developments, to bigger townhouse developments, and now to one that consists of 61 townhouses on a single site.  When their cashflow dries up and that huge project stalls due to lack of funds, what happens to the company? 
If you know anyone who has their money in those development company funds (like Williams/DuVal etc) you need to tell them to get it out now.  Its only a matter of time, and the clock is ticking ever closer to midnight.

Hits the nail directly on the head.  Alas, the halcyon days when the brilliant captain Simon Challis was steering the good ship Ryman are but a fond and very distant memory...  Very stormy seas ahead.  Could this go down to a significant discount to NTA ?    The question is why wouldn't it when you have excellent well managed REIT's with modest gearing trading at a ~ 30% discount to NTA and others in this sector trading at even bigger discounts with much lower gearing.  Ryman have snookered themselves comprehensively with their very high debt in a fast declining and slow selling housing market.

[BlackPeter]

While building costs have gone up, its land prices that have gone up more.  Land prices can come down faster than building costs go up, thereby making property cheaper over time.  Since you arent even buying the land in retirement units, its going to be harder to justify keeping prices high while the prices of established housing falls.

Not sure I understand your argument.

People are buying neither land nor buildings in retirement units, but the right to occupy both of them for the reminder of their life. Land is treated the same way as the building.

But apart from that ... argument was that people can't afford to buy a unit, if their house is less worth than the cost for their right to occupy. This is correct. However - I just checked our latest GV - land value to improvements is roughly 45% to 55% - and we do have a lot of land, i.e. I assume most people will have (in proportion) less land value and a higher value of improvements.

This clearly reduces the down risk for the whole thing to keep dropping if building costs go up with 18% p.a. (yes, to March 22 - newest number I could find).

I expect the housing market to bottom out in 2023 ...

[KW]

Not sure I understand your argument.

People are buying neither land nor buildings in retirement units, but the right to occupy both of them for the reminder of their life. Land is treated the same way as the building.

But apart from that ... argument was that people can't afford to buy a unit, if their house is less worth than the cost for their right to occupy. This is correct. However - I just checked our latest GV - land value to improvements is roughly 45% to 55% - and we do have a lot of land, i.e. I assume most people will have (in proportion) less land value and a higher value of improvements.

This clearly reduces the down risk for the whole thing to keep dropping if building costs go up with 18% p.a. (yes, to March 22 - newest number I could find).

I expect the housing market to bottom out in 2023 ...

My point was that house prices will fall as the value of land falls, at a faster rate than building costs/valuations go up. So the gap between selling a house and buying a retirement unit will increase over time unless retirement villages start cutting prices.  More people will choose, or will be forced, to stay in their existing homes or downsize to a smaller non-village home because they cannot fund the gap.  The potential customer pool is going to shrink.   
In Christchurch house prices doubled over the last 2.5 years - this is not because the buildings became worth more its because developers started seeing houses only for the value of the land they sit on.  Empty sections that were previously $250k were suddenly worth $500k.  Crappy old houses that used to be worth $400k were suddenly selling for $800k because they were on 800 sqm sections and a developer could whack 6 townhouses on it. 

On the housing market, the Labour Brightline period expires in March.  You can expect a wave of investors selling next year as soon as they are out of lockup.  The marginal  buyer sets the price. 

[BlackPeter]

My point was that house prices will fall as the value of land falls, at a faster rate than building costs/valuations go up. So the gap between selling a house and buying a retirement unit will increase over time unless retirement villages start cutting prices.  More people will choose, or will be forced, to stay in their existing homes or downsize to a smaller non-village home because they cannot fund the gap.  The potential customer pool is going to shrink.   
In Christchurch house prices doubled over the last 2.5 years - this is not because the buildings became worth more its because developers started seeing houses only for the value of the land they sit on.  Empty sections that were previously $250k were suddenly worth $500k.  Crappy old houses that used to be worth $400k were suddenly selling for $800k because they were on 800 sqm sections and a developer could whack 6 townhouses on it. 

On the housing market, the Labour Brightline period expires in March.  You can expect a wave of investors selling next year as soon as they are out of lockup.  The marginal  buyer sets the price. 

Fair enough - though, it is very easy to talk oneself into a doom mood just by looking at a small number of outrageous examples.

Does anybody know the average ratio between land value and improvements value in NZ? Until I get that I use our property as example for the average.

So - 45% of the total is land value ... and the dollar value for our land went up by factor 2.25 since the GV reassessment in 2012 (i.e. 9 years before the last one).

How much of that do you think will the value of the land go down again? Back a decade ago is unlikely - so lets assume it might lose half of the gains of the last decade, shall we?

This means that properties might lose in average something like 15 % of the total value if the land value drops by half the gains of the last decade.

Doesn't sounds that terrible with building cost soaring by 18% pa compensating for the dropping land value.

I think a 2023 bottom for real estate is likely ... and it won't be that bad (given that average house prices came already down by nearly 10% since last years peak).

Don't forget as well - while we have currently the most xenophobe and anti immigration government ever, they need to open the immigration tap to avoid a total break down in our health system (and not just there) - i.e. demand for houses will go up.

Supply and demand are determining the price.