Ann: Half Year Accounts, page-7

Thanks for your reply, it's a good discussion.

There's definitely strong demand from oldies, that's going to remain for a long time, which will keep occupancy strong. But if prices fall, then it reduces valuations (which reduces equity as you know).
This increases the debt to equity ratio, making it harder for them to buy new sites and expand. On top of that their loan repayments will go up which will impact cash-flow. These businesses don't have great cash-flow from their core operations, so it makes them even less attractive to lend to.

What does hit earnings is new build sales. Obviously if valuations decrease they won't be able to charge as much of a premium, reducing margins on the sales of new builds. However the resales of units from people who have passed should be okay.

Problem is, when interest rates rise it impacts demand and thus the overall volume of sales, so I can't see earnings out-pacing the increase in interest rates. I think if they stayed at current levels it'd be ok but it seems as if they will get back to circa 6% - which makes it much harder to absorb.

I believe interest rates will rise rapidly to counter inflation. Inflation is at 30 year highs yet interest rates are at 30 year lows. So they'll need to stamp it out before it truely gets out of control.

The last factor is the supply-demand imbalance. This is getting better (building industry is strong) which further reduces prices.