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New opportunities emerge in the retirement housing market as developers experience significant increases in profit

Overview

The $3bn retirement housing industry appears to be the new thriving property development opportunity driven by an aging population and the need for housing affordability. In 2016, the sector grew by 7.5% with some 184,000 Australians currently living in retirement villages (source: Property Council of Australia). This number is expected to increase to 382,000 within eight years as retirees seek to secure their own retirement homes (either traditional retirement villages or Over 55 Housing Estates).

Key Drivers

Due to increasing life expectancy and low fertility rates, the older population is increasing proportionally. The Australian Institute of Health and Welfare forecasted the population of Australians over 65 to increase to eight million or 22% by 2054.

As a result, an increasing number of private institutions have entered the retirement housing market. Private/institutional investors currently provide 84% of the retirement housing units.
Growth of the over 65 population in Australia (Source: AIHW, Australia's Welfare 2015)

An Alternative Approach

Traditional retirement villages are expensive and limited in supply in metropolitan areas. Due to entry costs and high exit costs of retirement villages and Over 55 Housing a significant proportion of older Australians struggle financially to access an appropriate level of care and appropriate.

An alternative to the traditional model of retirement villages are active-lifestyle manufactured estates for senior living located within a few hours of capital cities in attractive coastal or rural regions. These provide living for people over 50 who are not requiring frail care. Manufactured homes benefit from quality finishes at higher affordability levels, beautiful locations and a wide range of community and sporting facilities. Health and medical services may be provided.

The ASX listed Ingenia Communities Group is a good example for a successful strategy in this sector. By strategic acquisitions of development sites in coastal markets and a focus on occupancy, rental growth and leveraging scale efficiencies, the company could deliver a profit of $26.4 million in 2017, up 8.8% on prior year. The rental portfolio grew 58% on prior year.

Even though this model may provide investors with good returns, challenges lie in the availability of suitable development sites, debt finance and ongoing land rent and other costs.

The lack of affordable over 55s accommodation within desirable areas, combined with an ageing population and rising demand for active lifestyle housing solutions demonstrates the opportunities for aspirant property developers and investors in this market.
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Palladium Property www.palladium.net.au

Palladium Property is a property advisory and development consultancy firm with a strategic asset management and development management capability.

We identify optimum solutions and deliver tangible benefits for our clients through analysed research, independent advice, diligent and rigorous management; ensuring the maximum return on our Client’s time, investment funds and property development projects.

Our client base comprises local and foreign high net worth individuals and family offices, private investment trusts, global banking institutions and the NSW Government.

Contact

For further information regarding current trends and opportunities, contact:

Phillip Hoare (Director) or Raphael Lehmann (Development Analyst) on
02 9432 7888 or phoare@palladium.net.au

Disclaimer
The information contained in this newsletter is understood to be accurate and is based on sources deemed reliable. Any comment and analysis is of a general nature only and should not be interpreted to provide recommendation or advice to hold, purchase or sell property, nor projection of project financial returns of any property asset class, geographical region or project. Investors should rely on their own investigations and due diligence undertaken by third party professional consultants prior to making any acquisition, divestment or development decisions.