ASX debut: ‘A land crisis, not a housing crisis’, how GemLife is unscrambling the property puzzle

Investors have backed GemLife’s ‘seachanger’ property model with a strong debut on its closely-watched $1.5bn stock market listing.

Adrian Puljich heads up the GemLife residential retirement business which puts a new spin on development as it makes is ASX debut.

In his own way, Adrian Puljich is helping to ease the pressure valve on Australia’s housing crisis. For decades, his family-owned GemLife has been quietly going about building communities for people hitting retirement and looking to downsize for a seachange or even a treechange.

It’s a different path to homeownership, with GemLife building and selling the houses but retaining the property the structure sits on. Under the land leasing arrangement, this means there’s a lower entry cost to homeownership. When it comes to buying property, the bulk of the upfront costs sits in the land.

GemLife’s land lease model brings a new approached to community living.

With GemLife, the resident owns the home and can sell it when they want, while they rent the land it sits on. For homeowners this means the properties are often exempt from stamp duty or capital gains and other land taxes, which makes the model more attractive. Retirees can often qualify for a part-pension or rental assistance.

“If you look at the fact that we’re in the midst of a quite serious housing crisis, it’s compounded by the fact that we’re in a land crisis as well,” Puljich says. “Local governments and even state governments are reticent to release more greenfield development ­opportunities because they simply can’t afford to fund the services and infrastructure required to develop those sites.

“The government is looking for creative ways in which they can entice empty nesters to leave their four- or five-bedroom homes in established suburbs.”

Puljich says GemLife’s up-market communities offer one such solution, which ultimately frees up established homes.

Puljich, GemLife’s chief executive, is speaking to The Australian as his family-owned company has taken its biggest step yet, with Thursday’s $1.5bn ASX listing.

In terms of raisings, GemLife is shaping up as the biggest IPO on the ASX this year, beating out last month’s blockbuster Virgin float.

GemLife has tapped investors for $750m, where Virgin raised $685m. Although, the airline’s valuation is nearly double GemLife’s market capitalisation.

GemLife’s shares were sold in the IPO at $4.16 each. On opening, GemLife shares debuted at $4.40, marking a 5.8 per cent jump.

The developer is pushing ahead with its portfolio of upmarket properties.

The back-to-back floats represent a much-needed boost for the Australian sharemarket, which has been starved of big-ticket listings in recent years.

GemLife’s debut, underwritten by JPMorgan and Morgan Stanley, will be closely watched by bankers to gauge investor support for new listings.

The bulk of GemLife’s income is generated from development and sale of houses, while it also gets a rental income from land ownership. The model is new to some, but Puljich points out it has been around for decades – the relationship between the landowner (in this case GemLife) and the dwelling owner now well-regulated.

GemLife already has communities made up of nearly 2000 homes across Queensland, NSW, and Victoria. There’s a development pipeline of another 2500 under way and a longer term access to thousands of more DA-­approved sites.

As much as an enduring family business, GemLife represents a migrant success story. Adrian’s parents immigrated to Sydney from Croatia in 1968, where their first stop was a Villawood migrant hostel.

His father Peter was a self-taught renderer and worked up his own business in Sydney before the Queensland building boom of the early 1980s took the family to the Gold Coast. There he bought a caravan park to house his own workers. Next door to this was a retirement village that converted into a land-lease community.

Adrian, 37, took charge of the business more than a decade ago and from there he linked up with the Thakral family to push out to more land-lease developments across Australia’s east coast.

He says Australians are getting increasingly comfortable with different ways to own property, particularly into retirement, and land leasing is part of the mix.

A big part of the GemLife listing involves a related party transaction. Some of the proceeds from the IPO will be used to fund the $270m buyout of a portfolio of up to 12 land and development projects from an entity known as Aliria. This gives GemLife a pipeline of more than 3400 sites, making up much of its growth options. Aliria is ultimately controlled by Puljich. This acquisition has been raised by investors in briefings ahead of the listing. Puljich was comfortable talking through the transaction with The Australian.

At the time the greenfield sites were acquired by Aliria, they carried a higher-risk profile than GemLife was prepared to carry, including a lack of development approvals, he says. Today, the same sites have been matured and come with approvals in place that allows GemLife to move ahead with the development at a pace the market can absorb.

Australia’s property crisis is being exacerbated by a shortage of land development prospects. Picture: NewsWire/Max Mason-Hubers

“The value that GemLife is paying for those sites has been determined on an independent arm’s-length basis,” Puljich adds. “The price per site being paid is well below the industry average, because GemLife does not need to pay a platform fee similar to other transactions.”

The acquisition will be overseen by GemLife’s independent chair, Kristie Brown, a corporate lawyer and Centuria Capital chair. Former long-serving NIB boss Mark Fitzgibbon also sits on the GemLife board as an independent director.

The balance of funds under the IPO has been largely earmarked to pay down debt, giving GemLife a gearing ratio, or debt to equity ratio, of 24 per cent. This puts debt at the conservative end for a property developer.

Puljich points out that even with the selldown GemLife will continue to be managed around the principles of a founder-led business. After listing, the Puljich family will own 26 per cent and the Thakral family will have nearly 17 per cent. These holding will remain under escrow arrangements for up to 18 months.

“This is not only a builder, developer business, but it’s also one that’s successfully operated these communities for 40-plus years. We are one of only a select few that have been able to demonstrate longevity and experience,” he says.