Maurice Dunlevy | April 03, 2008
FALLING retirement village valuations had carved as much as 30 per cent from secondary stock since Christmas, financiers were warned yesterday.
CB Richard Retirement Housing and Healthcare division senior director David Bruce-Clarke said downward price adjustments could be expected in the next round of retirement village valuations as yields and discount rates came under pressure. Speaking at CBRE's annual valuation and advisory mortgage industry forum in Sydney, Mr Bruce-Clarke urged financiers to proceed with caution when valuing retirement village assets.
There has been no first-tier assets traded so far this year, but negotiations on secondary stock had led to a drop in pricing by as much as 30 per cent since Christmas.
"While this may seem extreme and the exception as opposed to the rule, it's certainly an indicator as to current sentiment in the market," he said.
"Rising borrowing costs may reduce profitability for a large number of retirement village operators, thus putting downward pressure on values.
"The knock-on effect of these rising borrowing costs and reduced profitability is a risk rating that will push discount rates up to reflect financial pressures and the volatile market.
"The resultant reduced values will place extra pressure on financiers, who will in turn have to closely monitor or reduce loan-to-value ratios to counter the changing conditions in the market."
Mr Bruce-Clarke urged financiers to consider various key performance indicators when lending against retirement assets.
These indicators included the quality and age of individual villages or portfolios, the quality of management, the extent of vacant stock and the demographics of catchment areas.
Mr Bruce-Clarke said retirement village fundamentals remained strong, given the sector's stable, long-term cash flows, the influences of an ageing population and general undersupply of stock.
"But the term caveat emptor comes to mind when considering the current climate," he said.
"While this means buyer beware, I suggest financiers also proceed with great caution."