John Purnell, 75, and his wife Patricia, 72, moved into a factory-built house in a converted caravan park west of Sydney this year, eschewing traditional retirement communities and other homes in the area. So now broke retirees have taken over the Australian Caravan Parks.
“Retirement villages are quite expensive,” said Patricia, a former payroll clerk at a seniors facility, as she sat in the couple’s $254,000, 160-square-metre air-conditioned home featuring built-in wardrobes, a separate laundry cupboard and a carport. Houses near the Nepean River Holiday Village had minimum price tags of about $350,000 and needed a further $50,000 of work, she said.
Australia’s expanding ranks of retirees, faced with skyrocketing house prices and inadequate savings, are set to boost demand for cheaper manufactured homes by as much as 41 per cent, according to Colliers International UK. Investors are responding to the growth of the nascent market, with companies including Ingenia Communities and Alceon, headed by former JPMorgan Chase banker Trevor Loewensohn, acquiring existing housing parks and sites to convert, and finance companies including GE Capital planning to start lending to operators.
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There is “tremendous opportunity in manufactured housing,” said Jason Kougellis, managing director for Australia and New Zealand at GE Capital. They “provide an affordable solution for an ageing population in a country that has some of the most expensive real estate in the world.”
If demand from people over 50 for homes in caravan parks continues at the current rate, it would rise to 96,636 properties by 2021 from 76,897 in 2011, according to forecasts by Colliers. That number could surge to 108,118 if demand increases at a “moderate level,” as has happened in more mature overseas markets, according to the broker.
Unlike in the US, where trailer parks typically provide housing for low-income residents, in Australia they have historically been used as tourist accommodations. The Australian manufactured home parks often include amenities such as pools, recreation halls and BBQ areas, and many cabins have porches and even small gardens.
The lack of mortgage financing for them in Australia also means that they’re restricted to retirees who are selling their homes and can pay cash.
The number of Australians over 75 years old is set to rise by about 4 million between 2012 and 2060, according to the Productivity Commission. It projects there’ll be more people older than 100 than newborns by 2100.
The average retirement savings in Australia is $151,000 for men older than 66 and $133,000 for women, Deloitte estimates. A “modest” lifestyle during retirement requires between $340,000 and $370,000, it said.
“The global financial crisis dealt a triple body blow to retirees” as savings shrank, low interest rates eroded incomes, and living costs rose, Deloitte said.
With the number of Australians over 65 set to grow at double the rate of the total population, more retirees will turn to lower-priced options, according to Shane Nicholson, a director of transaction services for health-care and retirement living at Colliers.
“Researchers have forecast that the number of people aged over 65 years in low-income private rentals will more than double by 2026” as Australia’s aged population grows at double the rate of the total population, Nicholson said. This makes lower-priced manufactured housing “the largest, fastest growing and least competitive band within the seniors living spectrum,” he said.
That only 5 per cent of seniors now live in communities tailored to them also offers growth prospects, Nicholson said.
Available senior housing can only accommodate about 10 per cent of the 3.3 million Australians older than 65, according to a July 22 report by Patersons Securities.
Ingenia, whose shares trade on the Australian stock exchange, has sold some traditional retirement villages and bought 15 parks since entering the sector in February 2013. Some, including the holiday village where the Purnells moved in February, are a mix of caravans, tourist cabins and newer permanent homes.
The company has compiled a database of 2000 tourist parks and manufactured housing communities to identify further acquisition targets. With the 10 biggest operators owning only five percent of parks, “there are lots of opportunities for consolidation,” said its chief executive, Simon Owen.
The parks – where buyers own the homes, not the land – charge home owners regular rents for use of the sites. The stable yields from the rents are attractive to investors, Mr Owen said, explaining Ingenia’s parks offered an unlevered return on equity of as much as 20 per cent.
Lifestyle Communities, a Melbourne-based developer of such properties, has 1628 sites in nine villages in Victoria, and starts a project every 12 to 18 months. That’s not enough, said its chief, James Kelly.
“The market’s so huge in terms of the emerging baby boom generation,” Kelly said. “The limitation on the industry is going to be the availability of capital, and the education of banks to provide debt.”
The burgeoning market is attracting investors. Shares of Lifestyle Communities have surged 90 per cent over the past two years and Ingenia’s have jumped 76 per cent, compared with a 17 per cent gain in the S&P/ASX 200 Index.
The average net worth of a household where the head was 65 or older was $1 million in fiscal year 2012, with $590,100 of that tied up in property, according to the latest data available from the Australian statistics bureau.
Many retirees “have a lot of money tied up in their house but don’t necessarily have much cash to live on,” said Mr Loewensohn of Alceon, which has acquired about 5000 sites in New South Wales and Queensland over the past two years, and is buying about one a month. So the cheaper option, as home prices rise, is driving demand, he said.
Home values jumped 9.3 per cent in Australian capital cities in the year through September, according to RP Data. In Sydney, they rose 14 per cent to a median $655,000 and in Melbourne, 12 per cent to $535,000.
In traditional villages, when buyers leave, they’re charged a deferred management fee, usually a proportion of the value for each year they’ve been there, capped at a certain number of years. Some operators also take back the gains in the value of a property on its sale.
Most manufactured home parks don’t charge deferred fees, only site rents. At the few operators that do, including Lifestyle Communities, they’re usually lower, Colliers’s Nicholson said.
Jennifer Wishart, 64, in July moved into a two-bedroom house in Ingenia’s The Grange, about 115 kilometers north of Sydney in the town of Morisset, that cost $50,000 less than the sale price of her home of 30 years five kilometers away. Seeking a lower-maintenance property after hand surgery, she considered traditional villages in the area and dismissed them because of the fee structure, she said.
“I didn’t like having to pay a departure fee,” she said. “I’d end up losing quite a bit of money.”
This article was sourced from the Sydney Morning Herald