Down-sizers are signing up for more off-the-plan apartments than any other group of property buyers – with first-home buyers lagging well behind, according to figures from property portal Apartments & Development.
However, the idea of a cashed-up down-sizer boomer ready to flex their finances isn’t always the reality.
In fact, down-sizers could actually be the new Aussie battlers.
Financial adviser Jessica Brady said that for many Australians of retirement age, downsizing was less a choice than a necessity.
“Vanguard’s How Australia Retires research found that only 7 per cent of retirees see their family home as a source of retirement funding – either through equity release, reverse mortgages or selling. For most, the family home isn’t just a financial asset. It’s their sense of stability, security, community and their legacy to support the next generation,” she said.
“Carrying debt into retirement, without a doubt, adds additional financial stress at a time that’s supposed to feel secure and free. Repayments eat into superannuation and pensions. Interest rate changes can cannibalise cashflow. And unexpected costs – from medical needs to home repairs – suddenly feel much heavier when there’s less room to move.”
“Vanguard’s How Australia Retires research found that nearly one in five retirees are renting, almost one in three working Australians expect to carry mortgage debt into retirement, one in two Australians don’t know if their money will last and 40 per cent have no clear retirement plan.
“There’s even a new term for anxiety: FORO – the fear of running out.”
The federal government’s down-sizer contribution scheme allows Australians aged 55 and older tip up to $300,000 each (or $600,000 a couple) from the sale of a family home into superannuation, outside normal caps.
Participation surged after the eligibility age was lowered from 60 to 55 – more than 80,000 Australians have contributed a combined $20 billion into super from down-sizing since 2018.
For many, the move makes financial sense and helps alleviate the stress of carrying debt into retirement.
Super earnings are taxed at just 15 per cent, compared to marginal rates outside of super. Once the funds shift into the pension phase, there are further tax breaks.
Adding to the popularity of off-the-plan purchases for some buyers are tax concessions such as stamp duty discounts or deferrals. Of course, apartments are generally lower maintenance, which appeals to retirees seeking simplicity, security, and lifestyle upgrades.
Elizabeth, who wanted only her first name used, recently down-sized from the family home in Point Cook, in Melbourne’s west, to a two-bedroom unit in nearby Newport. She lives with her disabled adult son and wanted to be mortgage free and save for ongoing medical costs in retirement.
“I raised our kids in that house for more than 30 years, but the mortgage hangover and the cost of medical expenses and everything else just caught up with me,” Elizabeth said.
“Down-sizing to a unit was about making sure I could actually afford retirement, and still look after my son.”
Among the benefits for Elizabeth and her son is that, despite moving suburbs, they are still relatively close to their Greek community in Point Cook (less than a 20-minute drive).
A recent study by the Western Australian Department of Communities found that, like Elizabeth, most older people want to remain in the communities they know but struggle to find affordable homes that suit their needs as they age. They also want to access support services in their home to avoid or delay moving into residential aged care.
The Apartments & Development research supported these findings, showing that most inquiries about off-the-plan developments came from those who lived in or near the suburb they were looking to move to.
Buyers in the top three postcodes of Melbourne (3000), Sydney (2000) and Surfers Paradise (4217) inquired about developments in Docklands (Victoria), Barangaroo (NSW) and Palm Beach (Queensland). The results suggest that buyers are keen to age in places and communities they are familiar with – but in low-maintenance apartments that better suit their needs as they age.
The research found investor interest in off-the-plan developments had edged higher to 18 per cent, while the “just looking” segment fell to 14 per cent, suggesting a modest shift toward more engaged, purchase-ready buyers.
For those looking for investments, there are numerous depreciation benefits in buying off the plan. Buyers can claim deductions on the building and fixtures, offsetting taxable income.
The Apartments & Developments report found budgets of $500,000-$1 million accounted for 75 per cent of sales, reflecting both rising property prices and a limited supply of stock at this price point nationally.
According to Cotality (formerly CoreLogic), national dwelling values are now eight times household incomes, making Australia one of the priciest property markets in the world.
The share of first-home buyers in lending figures has fallen to just 13 per cent nationally, and as low as 8 per cent in NSW.
Many first-home buyers are looking to softer regional markets or fringe suburbs for affordability, while down-sizers and investors dominate city markets.
It would seem that for down-sizers, superannuation incentives and tax breaks are influencing off-the-plan apartment purchases as a way to decrease debt in retirement.
Meanwhile, first-home buyers are increasingly forced to the sidelines as they struggle to climb onto the property ladder.
This article first appeared on View.com.au. Read the original here
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