By John McGrath, Property Expertwww.mcgrath.com.au
From Baby Boomers to Gen X and Gen Y, John McGrath looks at the latest trends in property buying. Prepared to be surprised at how times and attitudes have changed…
Many of today’s baby boomers want large luxury apartments above 200 sqm in lifestyle locations, particularly along the Australian coastline. They no longer expect apartment living to be less expensive than their family homes. They’re happy to sell for $2M and buy a luxury retirement pad for $2.5M – as long as it comes with the lifestyle they are seeking.
Ten years ago, many empty nesters thought about things differently – they aimed to sell high and buy a cheaper retirement property with significant change to spare. Today, lifestyle rules. And, just like the rest of the population, mature buyers are willing to pay for the best lifestyle they can afford.
I discussed this trend recently during a McGrath investment seminar held in Sydney’s Sutherland Shire. I was very proud to be a guest speaker alongside Reserve Bank Governor, Glenn Stevens, who delivered a fascinating speech to 200+ attendees.
Attitudes have shifted
Apartment living has changed dramatically over the past two decades. The biggest shift in people’s attitudes to apartment living occurred around the late 1990s/early 2000s when we went through the last major property boom. House prices in capital city markets, particularly Sydney, reached a point where house buyers started wondering whether apartments were really the poor cousin, as they perceived them to be.
We then started hearing about more families buying large apartments in lifestyle locations such as Manly beach. With no backyards, the beach became the kids’ playground and cafes became the place to catch-up with friends. Many families who couldn’t afford a house near the beach could definitely afford an apartment, and thus, we saw a shift in thinking.
The ageing population and delays in marriage and family are two significant social trends driving the apartment market across the country. Seniors love the convenience, security and low maintenance of today’s modern apartments and singles and couples feel the same way. Many 20 and 30-somethings see no reason to buy a house with a garden to maintain until they start thinking about children, and that keeps demand in the apartment market strong. While I continue to advocate houses over apartments for long term capital growth, lifestyle factors are much more important in the minds of Gen Y.
The rise in prestige apartments
In line with this change in buyers’ attitude came a change in development. These days, you won’t find too many developers building shoebox style apartments. There’s a lot of money to be made in developing large scale apartments in lifestyle locations particularly targeted at the downsizer market. Downsizers want luxury, convenience, security and proximity to amenities. Will they pay a few million? In many prestige markets, absolutely.
The most expensive apartment per sqm in Australia is one that recently sold in ‘The Toaster’ building at Circular Quay in Sydney. It exchanged hands for an incredible $68,000 per sqm. I’ve been in real estate for more than 28 years and I can remember a time not so long ago when $10,000 per sqm was considered a premium price.
At McGrath, we find that large newly-built prestige apartments are particularly attractive to baby boomers because everything is so luxurious and low maintenance. There’s also plenty of exciting and increasingly common features in new apartments that baby boomers never had in their family homes – fantastic luxuries like underfloor heating, ducted air conditioning, open plan living spaces and generous outdoor terraces.
Funding has been an issue for developers during the Global Financial Crisis, but this is starting to ease now, at least in Australia. You have to remember that the time lag between building approval and completion can be three or four years, so the lack of approvals for development in 2007-2009 will likely impact supply in 2012-2014. Meanwhile, demand from downsizers will get stronger as the population continues to age and investors will continue to buy during this current 3-5 year growth cycle.
Investment advice
Investors entering the market today would do well to keep re-sale value to downsizers in mind for the future, as downsizers will possibly become the most dominant buyer pool in the market in years to come.
You don’t have to buy a super glamorous multi-million apartment – there are plenty of more modest downsizers out there looking for simple modern low maintenance homes on the ground floor close to cafes and shops.
Investors should always keep re-sale value in mind. Even if you never intend to sell the property, your equity will grow more strongly if the property has good re-sale appeal.
For more information and advice, please visit www.mcgrath.com.au
