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Australian Baby Boomers – A Guide for Property Investors

australian baby boomersThere is a feeling among many that the flurry with which Australian baby boomers are going to retire will create a big demographic shift and lead to the collapse of its real estate. Baby boomers have been equated with the elephant in the property market room. There have been widespread discussions about what may happen when this group sells properties in bulk.

Given that there are 5.3 million baby boomers expected to retire in the next 15 years, this should be a sure cause for worry. So, is it? Let’s find out. I will also tell you about that one particular lifestyle choice of the baby boomers which hasn’t gotten any press and remains a secret. Read along.

What is a baby boomer?

It will be interesting and perhaps significant to first learn something about this generation. Australian baby boomers are the kids of the post World War II generation who first saw what good life was all about. Their formative years were marked by good food, clothing, fresh air, and a relatively disease-free world and of course, no fear of concentration camps.

Baby boomer characteristics: what made them who they are?

what is a baby boomerThese people contributed a lot to the economy because they were sound enough to develop into smart individuals. Yes, because they saw good life right from its outset, they developed a different kind of attitude towards wealth. I won’t put my neck on the line and say that they were completely careless with money but with some exception, they were the sort who did not look too far away into the future. How did this particular trait turn out to be their greatest undoing?

Australian baby boomers thought retirement is a myth

The answer is simple: they felt that retirement is a time that doesn’t really arrive and thus, they did not do enough to boost their retirement nest egg. This is impacting them now that they know retirement is well and truly a reality and that they are going to be sucked into this reality soon enough. They want to live a decent life after retirement, but unfortunately, a majority of them do not have enough means to do it.

Australian boomers will have their Supers running for an average of 8 years

There is reliable research (and in fact, quite many of them) that suggests that on an average, their superannuation money will only last for 8 years. So, what will they do once their last resource is drained? Of course, many anticipate the kind of impact a depleted money bag may have on them during their later years and so they are not planning to retire anytime soon and are willing to work right into their 70s.

Baby boomers won’t keep their properties infinitely

All this is good introduction to the baby boomer generation. However, let us focus our energies on how they may impact the property market of Australia in times to come. There is an increasing number of people who feel that Australian baby boomers won’t hold on to their property forever, and one day, they would want to sell off their properties and spend the cash on creature comforts and luxuries of all kinds. What will such a scenario lead to? Perhaps a bleeding of the property market that is already bursting at the seams in many places.

Baby boomers Australia will eventually downsize

The fears have penetrated deep within us, at least partially because of our knowledge of what happened in Japan. The country saw a disproportionately high number of retirees surpassing the number of working people, and this impacted the economy badly.

However, this is not expected to happen in Australia, not by a long margin. Why?

Because I think that the foremost point which closes this debate is that the baby boomers won’t start selling their properties outright. We are talking about people who may be retiring from the workforce but are healthy enough nonetheless. A majority of them do not want to leave the suburb they have spent their last couple of decades in. They want a life close to the people they have formed lifelong relationships with.

This does not mean a good number of Australian baby boomers won’t sell up and eventually downsize. It’s just that the impact we are attaching to such a possibility will be different because things are likely to unfold differently. Let me explain why.

Australian baby boomers will sell in bulk but their properties will be absorbed

baby boomers in property marketBaby boomers who will downsize to a contemporary accommodation style will not find any problems in finding buyers. There is a gang of developers waiting with bated breath for this day to come. After all, it will be their chance of lapping up properties for a reasonable price (Australian baby boomers are not the best negotiators) and converting them into modern duplexes, condos, and apartments for the ever growing population.

Ripple effect resulting from mass sale by baby boomers

So, with the entry of developers into the game, the ripple effect started by mass sale will be nullified. If mass sale is expected to bring too many properties into the market and cause a rapid decline in prices, the enterprising developers will ensure that the same properties hit the market in a new avatar and sell for a good deal more than they were bought at. It would be easier then to understand how this can mitigate the mass sale pressure on the economy, isn’t it?

Of course, there are still many more factors that need to be considered.

Generation Y may enter the work force in greater numbers

One point worth pondering is the “double whammy” effect baby boomers are going to have on the treasury. They are going to retire en masse, and hence stop paying their taxes. To make things worse, they will also be asking for pension and a public health care system- the money for which will have to come from current taxpayers.

This could be done in two ways. One, the taxes levied on an individual will have to increase. This isn’t possible given that it is equivalent to political suicide for the persons in authority. The second option will be to increase the number of young workers hitting the workforce.

This can be done through migration. Sydney provides an instance of high net interstate migration and absorption of a skilled, young workforce. This workforce will ensure that more money enters the government treasury, first through tax payment and secondly, through greater cash spending which younger people typically do.

These young people will also need better housing (on rent or for buying), and thus they will further balance out the effect of mass sale triggered by the baby boomer generation.

Generation X and Gen Y both buying from the boomers

gen X buying from baby boomersGentrification trends clearly suggest that many of us are glued to the capital city lifestyle and don’t want to move anywhere else. We have departed cleanly from our past where we had this big penchant towards huge suburban mansions. We are quite happy to minimise the size of dwellings but look for options close to the CBD areas of the capitals.

Another interesting concept that has been doing the rounds is rentvesting. Young generations, especially first home buyers, are buying in suburban areas for a reasonable price and living on rent in luxury neighbourhoods.

This trend is likely to keep working and will soak in a good part of properties sold by baby boomers in the suburbs. And, to reiterate, the government is planning to infuse more young workers into the economy and this will only make sure that the number of such suburban purchases will only get higher.

So, the pertinent question now will be, “What challenge lies ahead for property investors in the wake of such mass retirement?”

Before baby boomers and after them, no one quite like them

developing properties for baby boomersI am inclined to think that Australian baby boomers will have an unprecedented style of retirement. Just as they were the ones to live an “adolescence and youth” like no one else in the past, they will live through their retirement years in a never-before seen manner, too. I am somehow convinced of this.

Property investors will have to anticipate what kind of lifestyle baby boomers might look for and also soak in the fact that it is a big cohort, shaped by people of different tastes, preferences and lifestyles. It would be a huge mistake to lump the baby boomer generation under one category.

Only a very few from the baby boomer generation feel secured

A part of the baby boomer generation has made ample gains from the property boom. These are the ones who live in large homes, which are in smart locations. It wouldn’t then be wrong to suggest that a fair number of them are cashed up. Their superannuation (those who have got their investment strategies planned well in advance) will only make them more comfortable in years to come. These people will have plenty of choices. It needs to be kept in mind that this generation is also going to live well into its 80s (thanks to increasing life expectancy).

But there is another side to the story. There are unhappy baby boomers who haven’t been able to save enough over their working lives and are looking to work into their 70s, which, after all, are regarded as the new 60s. These people will downsize, not in one big gulp, but in small sips. So, to answer our primary question, the effect of their mass retirement will be well diluted.

And we have already spoken quite a bit about how the big number of holiday homes, family homes and investment properties will be absorbed into the property market once the ‘boomers’ call it a day and quietly vanish into the crowd.

Generation baby boomers opting for unconventional housing options

While there are mammoth opportunities for property investors, it will be wise for them to take a good look at the direction the baby boomers want to turn. The boomers, as we have already discussed, may bring forth unheard retirement choices on the real estate table. Their downsizing solution may range from the innovative to the bizarre.

I don’t think they will set sail for the closest retirement village or settle into conventional retirement houses. I think that a majority of them will redevelop their existing property. Such redevelopments will help them ease into an inter-generational living or a single-storey-lifestyle where independence will be the buzzword.

Australian baby boomers are not inclined to run north to the warm climate or the coasts of Queensland. They are only going to love the capital city lifestyle which is flushed with contemporary amenities and modern day facilities of every kind; transport, wellness spa, hospitals, and so on.

Baby boomers look for certain facets in their homes

parents of baby boomersWhen you invest in a property, keeping in mind the great opportunity at hand, remember the following factors:

Location is crucial

Location will be of prime importance. Baby boomers won’t settle into the village outskirts and compromise on their lifestyle. Instead, they will seek options in the capital cities even if it means squeezing their reverse mortgage options, cash savings and superannuation kitty.

Low-rise apartments

They would be keener on settling into the low-rises. I know developers and investors are truly into high-rise apartments. But truth be told, even the best elevator facilities cannot undo the inclination of baby boomers towards low rises and close-to-the-ground homes.

Modern facilities and amenities

Newly refurbished properties with all the modern-day equipment and lifestyle furniture may turn out to be quite a craze with the ‘boomers’. So, next time you think of a property with them in mind, try thinking of an iPhone-oriented LED light recipe or a glass cooktop.

Floor plan

The floor plan is essential. The baby boomers quite like the concept of single level housing. Improvising with split level house design can be a great idea, too. There is no need to rule out stairs but their placement shall in no way hinder the movement of the residents who are well past their 60th year.

recreation for baby boomersHomes catering to both: work life and recreation

Many from the baby boomer generation (and this is the secret I talked about in the opening paragraph) will juggle work and retirement in their 70s. What this means is that they will give half their time to employment and half to recreation. So, as property investors, you ideally need to focus on homes with home-offices, high speed internet connections and at the same time the ‘therapeutic’ garden or the occasional garden cottage.

Keep their parents or adult children in mind

Also, it will be prudent to remember that our picture of the baby boomers of Australia as an ‘old’ generation is flawed. In some cases, they still have living parents. And these parents, who are expected to be well into their 90s, tend to be really frail. So, homes which have something akin to the granny flat is most likely to serve some of the ‘boomers’ well.

I think that entering the psyche of the boomers is key. Here, we are talking about individuals who have come to terms with their declining physical abilities, and yet are bent on enjoying family gatherings, heterogeneous friend groups and the same life that they enjoyed in their 50s.

Baby boomer generation will keep investors and developers on their toes

Getting armed for the changes that are triggered by Australian baby boomers will be one fresh challenge ahead of property investors. How well they take it up will not only determine the positioning of their own portfolio but also impact the national economy. So, this macro-economic question needs some research, at the very least, on the part of real estate investors.

Thankfully, Australia does not have to wade through the kind of crisis the United Kingdom is going through. Helped by interest-only mortgage schemes, the elderly population is investing heavily into properties. In an attempt to diversify their investment strategies, they are digging deep into real estate.

Such provisions are denied to the FHBs and they are feeling left out of the housing market, unable to compete with baby boomers who have government initiatives going for them. They also have enough cash savings to pay for upfront costs. To make matters worse, the working population is forced to rent in neighbourhoods where the rent is too high for comfort.

Physical age of baby boomers will need to be kept in mind

australian boomers choosing asiaAustralia is still a good place in this regard and even when we budget for some of the baby boomers packing for foreign shores in Southeast Asia (to enjoy lower cost of living), the property investor fraternity is still looking at a big number of people to cater to. Just get your act right.

Make sure that the bathrooms have provisions for transfer seats and grab bars, ensure that you build ensuite bedrooms in the first floor in at least 30% of your investment properties and do your bit to guarantee that the parents or adult children in the baby boomers’ home get a space that they can call their own.

For a baby boomer years that lie ahead are as important

baby boomer lifestyleWisdom dictates that we should not lump these people into some limited demographic category. Some of them are on the hardworking track and others are working retired. Some have a whole inter-generational family to cater to, while others have a frail parent or an adult child to look after. Creating a lifestyle situation for them which is in sync with their needs is the right way ahead for property investors.

If I were to advise the developers, it would be along the lines of creating something that meets the recreational and work-oriented lifestyle of the new bunch of retirees. If anything, they won’t be conventional and unless the developers and the investors are going to look beyond the box, they are never going to be on the same page with these ‘kids’ born during the Post Second World War baby boom.