Retirees spark trailer park home boom in Australia
Retirees with low savings are selling their traditional homes in cities to move to cheaper factory-built housing in converted sites
John Purnell, 75, and his wife Patricia, 72, moved into a factory-built house in a converted trailer park west of Sydney this year, eschewing traditional retirement communities and other homes in the area.
"Retirement villages are quite expensive," Patricia, a former payroll clerk at a seniors facility, said in an interview in their A$254,000 (HK$1.74 million), 1,722 square foot air-conditioned home, which features built-in wardrobes, a separate utility area and a parking space. Nearby houses had minimum price tags of about A$350,000 and needed a further A$50,000 of work, she said.
Investors are responding to the growth of the nascent market, with companies including Ingenia Communities Group and Alceon Group - headed by former JP Morgan Chase banker Trevor Loewensohn - acquiring existing housing parks and sites to convert, and finance companies including GE Capital planning to start lending to operators.
There was "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".
GE Capital, which had lent US$5 billion to manufactured housing operators in the US and Canada, planned to do the same in Australia, Kougellis said.
If demand from people older than 50 for homes in caravan parks continues at the current rate, it will 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 increased at a "moderate level", as had happened in more mature overseas markets, the broker said.
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 barbecue areas, and many homes have porches and even small gardens.
The lack of mortgage financing for them in Australia also means that they are restricted to retirees who are selling their homes and can pay cash.
The number of Australians more than 75 years old is set to rise by about four million between 2012 and 2060, according to a report last November by the Productivity Commission, the government's independent advisory body.
It projects there will be more people older than 100 by 2100 than newborns that year.
Average retirement savings were A$151,000 for men older than 66 and A$133,000 for women, Deloitte estimated in a June report. A "modest" lifestyle during retirement required between A$340,000 and A$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 more than 65 years old set to grow at double the rate of the total population, more retirees would turn to lower-priced options, according to Shane Nicholson, a Sydney-based director 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," Nicholson said.
This made 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 lived in communities tailored to them also offered growth prospects, Nicholson said. That compares with about 12 per cent in the US, he added.
Available senior housing can only accommodate about 10 per cent of the 3.3 million Australians older than 65, according to a July report by Patersons Securities.
Ingenia has sold some traditional retirement villages and bought 15 parks since entering the sector in February last year. Some, including the Nepean River Holiday Village where the Purnells moved in February, are a mix of caravans, tourist cabins and newer permanent homes.
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 were attractive to investors, Owen said, adding 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 1,628 sites in nine villages in Victoria state, and starts a project every 12 to 18 months. That was not enough, said chief executive 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 98 per cent over the past two years and Ingenia's have jumped 76 per cent, compared with a 16 per cent gain in the benchmark S&P/ASX 200 Index.
As life expectancy and the number of people older than 65 climbed, "for those with the vision and the capacity to strategically allocate capital, the opportunity to achieve long-term superior returns is present", Martyn Jacobs, an analyst at Patersons, wrote in a report in July, when he initiated coverage of both companies with buy ratings.
The average net worth of a household where the head was at least 65 years old was A$1 million in fiscal year 2012, with A$590,100 of that 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 Loewensohn.
Alceon has acquired about 5,000 sites in New South Wales and Queensland states over the past two years, and is buying about one a month. So the cheaper option, as home prices rose, was driving demand, he said.
Home values jumped 9.3 per cent in Australian capital cities in the year to September, according to researcher RP Data. In Sydney, they rose 14 per cent to a median A$655,000, and in Melbourne 12 per cent to A$535,000.
In traditional villages, when buyers leave, they are charged a deferred management fee, usually a proportion of the value for each year they have 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 do not charge deferred fees, only site rents. At the few operators that did, including Lifestyle Communities, they were usually lower, Nicholson said.