Power downshifters

With everyone living longer, the notion that turning 50 means some sort of rapid decline into “old age” no longer applies. In fact, quite the opposite is happening among a baby boomer generation that now seeks to celebrate its comparative youth, affluence and the lifestyle choices.

We are seeing one of those choices being strongly played out in the property market: the fierce buyer competition for smaller, low-maintenance, inner-urban properties. Among the keenest bidders are what I call the “still engaged, not aged” group. This very active and focused “splinter group” – from the late 40s to mid-50s – are often buying with an investor mindset, but have an inbuilt longer range plan to turn that investment into a, hassle-free base once they sell their larger family home and retire.

A snapshot of this group comes from a study of the retiree market by the University of Queensland’s Centre for Research into Sustainable Urban and Regional Futures. The implications for the property market are profound.

The study confirms that Australians strongly prefer to live independently for as long as possible and regard assisted retirement village-type accommodation as a last option. Currently, 90% of over 65 year olds are still living independently. The report also says that “over the next 10 years, downsizing from large homes will gather pace, coupled with greater demand for high-density living”.

This will impact greatly on the demand versus supply equation because the type of properties they seek and the locations they prefer are already in short supply. A key factor for downsizers, the report says, is a preference to stay within their known local area and to maintain networks with friends, family and familiar services, including public transport, medical facilities and leisure outlets.

If we take into account the fact that the proportion of the population aged 55 and over will grow from 3.9 million in 1996 to 6.3 million in 2011 and 7.7 million by 2026, the competition for properties that cater to this group becomes intense.

Given the demand will increase, it is important that intending buyers within this demographic be aware of how to assess and maximise opportunities. Here’s a checklist to get the ball rolling in your direction:

• When it comes to selling the family home, know your market values. Have an independent current market valuation done on the family home and spend some time comparing the sales results for similar properties in the same area. Don’t just accept one selling agent’s quote.
• Fully research market prices for preferred property styles and sizes in the location you wish to buy into. Just because a property is smaller than the one being sold, or the one you currently live in, doesn’t mean it will be a lot less expensive. High demand versus limited supply, coupled with high land value and sought after architectural scarcity value often means surprisingly high price tags for relatively small dwellings. To this end, decide how much physical accommodation will satisfy your future needs.
• Many people experience “culture shock” when they move from a larger family home to a smaller dwelling, such as an apartment or higher-density townhouse. If there are doubts about whether the transition will suit, consider renting such a property for a trial period before selling the family home.
• Determine a priority list in terms of desired facilities, including health care, public transport, proximity to family or friends, known shopping areas and leisure facilities that may take on greater importance down the track. It is proximity to these facilities that add considerable value and create across-the-board demand, so expect strong buyer competition.
• Don’t automatically sell the family home before purchasing a preferred smaller dwelling in the belief that because you are “cashed up” from the sale it will be easy to buy something else quickly. Inevitably, finding a new home takes time, especially in a rising market where supply is short and demand is high. If the intention is to make a relatively quick move from a family home to a smaller dwelling, then buy and sell on the same market rather than hoping for a quieter period and lower prices. Because of the high demand factor, the market sectors that offer these preferred facilities are unlikely to produce negative price movements unless there is a significant economic downturn or a massive rise in interest rates. This is very different from the gentle ebb and flow in price cycles that are relatively insignificant and a not a sign of serious downturn.
• If a prospective purchaser has the financial means to buy into their preferred downsizing location before retirement, then it may be wise to apply the right investment selection criteria for ongoing strong capital growth and consistent rental income. In the event that personal circumstances change, it will be far easier to dispose of a highly sought after good growth asset.
• Do the due diligence in regard to any legal complications or structural and maintenance issues before purchasing. Having to carry out unforeseen and costly structural work can be daunting and disheartening at any age!
• If you have not dealt in the property market for some years, then seek independent advice on the best buying and selling strategies. For instance, given that so much inner urban property is auctioned, you may be tempted to buy before auction in an effort to sidestep the often nerve racking bidding and negotiation process. However, this can mean paying a very high premium price … unnecessarily.
• If you are downsizing in a market where values are rising, it may be better to buy first on a longer settlement and sell second. This strategy means you are able to cap the cost of the new home and take advantage of rising values on the sale of the existing one.

This article first appeared in Eureka Report.