Article | Intelligent Investment
Benefits of Land Lease Communities: A $12 Billion Growth Sector that Could Solve Australia’s Housing Shortage
Solutions like land lease communities are already being proposed by some of the property industry’s leading players.
May 21, 2024
Australia’s current housing shortage is driving a bleak outlook for home buyers.
Our recent residential expert analysis on the predicament revealed that the nation is set to endure years of declining housing supply before conditions improve.
“We've got four years of worsening supply situations; that’s four years of decreasing supply and increasing demand. And then there'll be a four-to-five-year lag period before we catch up. We're going to be in one of the most difficult markets for people who are looking for a home,” explained David Milton, CBRE’s Managing Director of Residential Projects in Australia.
Despite this consensus, viable solutions are already being placed in motion by some of the property industry’s leading players - land lease communities being one of them.
What are land lease communities?
In land lease communities, a buyer owns their home but leases the land where the home is situated from a community operator. The buyer pays rent for the right to occupy the site with a manufactured home or moveable dwelling.
Land lease communities have become increasingly sought after as an option for retirees with roughly 130,000 Australians living in these estates. This $12 billion sector has also been labelled the fastest growing solution for downsizers in the country, and if we follow the U.S. model, land lease could cater to both downsizers and deliver a more affordable housing solution for first home buyers and families.
What are three immediate benefits of land lease communities for investors and home buyers?
It’s a question we posed to Kate Melrose from the Ingenia Communities Group, a company which has been working in this sector for years as a pioneer in Australia. Additional commentary on the potential of this sector also comes via CBRE's Liam Greentree and Kat Hale in the latest episode of our Talking Property podcast.
Improved affordability and flexibility
“The land lease sector provides a very simple solution where you only pay what you want to pay for your home and your rent,” explains Melrose.
“Homes in the sector generally vary from $300,000 at the very affordable end, up to well over $2 million at the more sophisticated end of the sector. And your rents are generally in the high hundred to low two hundred dollars a week.”
As well as this, Melrose says that there's no exit fee, no entry fee and no stamp duty when purchasing a land lease property.
“If you're comparing that with the retirement community, it has in-going contributions, ongoing contributions and exit fees. And you may not keep 100 percent of your capital gain subject to your contract.
“Land lease communities in contrast present a very simple solution from a legislative or a contractual perspective for the consumer, but it also provides a very strong lifestyle; it's really targeting the discerning baby boomer who wants to upscale their lifestyle, and their bank balance.”
Land lease communities essentially tap into what this customer base desires, which is to live in a caring connected community, have fun, a sense of belonging and often a continuum of care support on hand while they live their most enriched life. This also comes with the benefit of cashing out to fund their next chapter, reward themselves, travel or help kids out.
Delivering the quintessential lifestyle
Liam Greentree is CBRE’s Valuations & Advisory Services Director for Alternative Assets. He believes that the concept of lifestyle is land lease’s strongest selling point.
“The target demographic is people, who might still be working part-time or on a casual basis, but it allows them to free up capital by selling their home so they can enjoy their retirement years.
“There's a lot of facilities which are provided on site from tennis courts to bowling greens to pickleball courts and swimming pools. They can even provide aqua aerobics, yoga classes, and pilates. There's a number of key benefits they wrap into these communities to allow retirees to really enjoy the golden years.”
Kat Hale, CBRE’s Australian Director of Residential Valuations, adds that many of land lease’s residents have come from older homes requiring regular maintenance.
“They’ve traded all that upkeep into something that is new and low maintenance, so they can enjoy the wonderful lifestyle that’s offered in these communities.”
Melrose has seen this sector evolve. While caravan parks and conversion style housing is necessary in servicing the affordable end of the market, land lease communities are essentially sophisticated resort-style facilities backed by engaged community activities and social programs which can support strong preventative health measures and mental health initiatives for the residents.
“They're living in a caring connected community underpinned by the very same principles that support wellness, healthy aging and longevity across the ‘Blue Zones’. These communities are designed to promote engagement, movement, a sense of purpose and fun, and they sleep better with more money in the bank. All of this has a positive social and economic impact on the communities around them.”
Growing investor interest
When looking at the sector’s potential return on investment, the proof can already be found in the latest partnerships. Recent major deals include Mirvac Group’s partnership acquisition of one of Australia's leading land lease operators for just over a billion dollars, while HMC Capital and Canadian Pension Plan Investment Board increased their own stakes in Ingenia Communities Group.
What hidden potential do local and offshore investor groups see in the sector?
“I think it really became evident of how appealing this asset class was due to the pandemic,” says Greentree.
“During Covid there was a big shift from these funds looking into alternatives because of the impacts to cash flow and returns on the traditional property asset classes like office, retail and industrial.
“There was still 100 percent occupancy in these land lease communities, and rent was still being paid; there was no impact to the cashflow at all. When you look at the thematics behind land lease communities, it’s effectively a build-to-rent project but you are making a minor development profit along the way.
“We have just been referring to it as horizontal build-to-rent because it’s incredibly appealing. It's an annuity style income, you have annual rent increases for retirees and they get a portion of that rent paid by the Commonwealth Government. It's pretty much a win-win for everyone.”
Learn more about land lease communities by listening to the full podcast episode.
Our recent residential expert analysis on the predicament revealed that the nation is set to endure years of declining housing supply before conditions improve.
“We've got four years of worsening supply situations; that’s four years of decreasing supply and increasing demand. And then there'll be a four-to-five-year lag period before we catch up. We're going to be in one of the most difficult markets for people who are looking for a home,” explained David Milton, CBRE’s Managing Director of Residential Projects in Australia.
Despite this consensus, viable solutions are already being placed in motion by some of the property industry’s leading players - land lease communities being one of them.
What are land lease communities?
In land lease communities, a buyer owns their home but leases the land where the home is situated from a community operator. The buyer pays rent for the right to occupy the site with a manufactured home or moveable dwelling.
Land lease communities have become increasingly sought after as an option for retirees with roughly 130,000 Australians living in these estates. This $12 billion sector has also been labelled the fastest growing solution for downsizers in the country, and if we follow the U.S. model, land lease could cater to both downsizers and deliver a more affordable housing solution for first home buyers and families.
What are three immediate benefits of land lease communities for investors and home buyers?
It’s a question we posed to Kate Melrose from the Ingenia Communities Group, a company which has been working in this sector for years as a pioneer in Australia. Additional commentary on the potential of this sector also comes via CBRE's Liam Greentree and Kat Hale in the latest episode of our Talking Property podcast.
Improved affordability and flexibility
“The land lease sector provides a very simple solution where you only pay what you want to pay for your home and your rent,” explains Melrose.
“Homes in the sector generally vary from $300,000 at the very affordable end, up to well over $2 million at the more sophisticated end of the sector. And your rents are generally in the high hundred to low two hundred dollars a week.”
As well as this, Melrose says that there's no exit fee, no entry fee and no stamp duty when purchasing a land lease property.
“If you're comparing that with the retirement community, it has in-going contributions, ongoing contributions and exit fees. And you may not keep 100 percent of your capital gain subject to your contract.
“Land lease communities in contrast present a very simple solution from a legislative or a contractual perspective for the consumer, but it also provides a very strong lifestyle; it's really targeting the discerning baby boomer who wants to upscale their lifestyle, and their bank balance.”
Land lease communities essentially tap into what this customer base desires, which is to live in a caring connected community, have fun, a sense of belonging and often a continuum of care support on hand while they live their most enriched life. This also comes with the benefit of cashing out to fund their next chapter, reward themselves, travel or help kids out.
Delivering the quintessential lifestyle
Liam Greentree is CBRE’s Valuations & Advisory Services Director for Alternative Assets. He believes that the concept of lifestyle is land lease’s strongest selling point.
“The target demographic is people, who might still be working part-time or on a casual basis, but it allows them to free up capital by selling their home so they can enjoy their retirement years.
“There's a lot of facilities which are provided on site from tennis courts to bowling greens to pickleball courts and swimming pools. They can even provide aqua aerobics, yoga classes, and pilates. There's a number of key benefits they wrap into these communities to allow retirees to really enjoy the golden years.”
Kat Hale, CBRE’s Australian Director of Residential Valuations, adds that many of land lease’s residents have come from older homes requiring regular maintenance.
“They’ve traded all that upkeep into something that is new and low maintenance, so they can enjoy the wonderful lifestyle that’s offered in these communities.”
Melrose has seen this sector evolve. While caravan parks and conversion style housing is necessary in servicing the affordable end of the market, land lease communities are essentially sophisticated resort-style facilities backed by engaged community activities and social programs which can support strong preventative health measures and mental health initiatives for the residents.
“They're living in a caring connected community underpinned by the very same principles that support wellness, healthy aging and longevity across the ‘Blue Zones’. These communities are designed to promote engagement, movement, a sense of purpose and fun, and they sleep better with more money in the bank. All of this has a positive social and economic impact on the communities around them.”
Growing investor interest
When looking at the sector’s potential return on investment, the proof can already be found in the latest partnerships. Recent major deals include Mirvac Group’s partnership acquisition of one of Australia's leading land lease operators for just over a billion dollars, while HMC Capital and Canadian Pension Plan Investment Board increased their own stakes in Ingenia Communities Group.
What hidden potential do local and offshore investor groups see in the sector?
“I think it really became evident of how appealing this asset class was due to the pandemic,” says Greentree.
“During Covid there was a big shift from these funds looking into alternatives because of the impacts to cash flow and returns on the traditional property asset classes like office, retail and industrial.
“There was still 100 percent occupancy in these land lease communities, and rent was still being paid; there was no impact to the cashflow at all. When you look at the thematics behind land lease communities, it’s effectively a build-to-rent project but you are making a minor development profit along the way.
“We have just been referring to it as horizontal build-to-rent because it’s incredibly appealing. It's an annuity style income, you have annual rent increases for retirees and they get a portion of that rent paid by the Commonwealth Government. It's pretty much a win-win for everyone.”
Learn more about land lease communities by listening to the full podcast episode.
