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Portfolio > Alternative Investments > Real Estate

Real estate: Broke retirees drive Australian trailer-park boom

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(Bloomberg) — 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 AU$254,000 (US$224,053) 160-square-meter (1,722-square-foot) air-conditioned home, which features built-in wardrobes, a separate laundry cupboard and a carport. Nearby houses had minimum price tags of about AU$350,000 and needed a further AU$50,000 of work, she said.

Australia’s expanding ranks of retirees, faced with declining affordability of housing and inadequate savings, are set to boost demand for cheaper manufactured homes by as much as 41 percent, according to Colliers International U.K. Plc. Investors are responding to the growth of the nascent market, with companies including Ingenia Communities Group and Alceon Group Pty, headed by former JPMorgan Chase & Co. banker Trevor Loewensohn, acquiring existing housing parks and sites to convert, and finance companies including GE Capital planning to start lending to operators.

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 aging population in a country that has some of the most expensive real estate in the world.”

GE Capital, which has lent $5 billion to manufactured housing operators in the U.S. and Canada, plans to start doing the same in Australia, Sydney-based Kougellis said.

If demand from people older than 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.

U.S. Comparison

Unlike in the U.S., 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’re 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 4 million between 2012 and 2060, according to a November report by the Productivity Commission, the government’s independent advisory body. It projects there’ll be more people older than 100 by 2100 than newborns that year.

Triple Blow

The average retirement savings was AU$151,000 for men older than 66 and AU$133,000 for women, Deloitte LLP estimated in a June report. A “modest” lifestyle during retirement requires between AU$340,000 and AU$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 will turn to lower-priced options, according to Shane Nicholson, Sydney-based 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.

Growth Prospects

That only 5 percent of seniors now live in communities tailored to them also offers growth prospects, Nicholson said. That compares with about 12 percent in the U.S., he said.

Available senior housing can only accommodate about 10 percent of the 3.3 million Australians older than 65, according to a July 22 report by Patersons Securities Ltd.

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 Nepean River 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 2,000 tourist parks and manufactured housing communities to identify further acquisition targets. With the 10 biggest operators owning only 5 percent of parks, “there are lots of opportunities for consolidation,” Chief Executive Officer Simon Owen said.

Baby Boomers

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, Owen said, adding Ingenia’s parks offer an unlevered return on equity of as much as 20 percent.

Lifestyle Communities Ltd., 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’s not enough, said Chief Executive Officer 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 percent over the past two years and Ingenia’s have jumped 76 percent, compared with a 16 percent gain in the benchmark S&P/ASX 200 Index.

As life expectancy and the number of people older than 65 climb, “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.

Cash Poor

The average net worth of a household where the head was at least 65 years old was AU$1 million in fiscal year 2012, with AU$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 of Alceon, which 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 rise, is driving demand, he said.

Home values jumped 9.3 percent in Australian capital cities in the year through September, according to researcher RP Data Pty. In Sydney, they rose 14 percent to a median AU$655,000 and in Melbourne 12 percent to AU$535,000.

Deferred Fees

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 (71 miles) north of Sydney in the town of Morisset, that cost AU$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.”


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