05 Aug What Baby Boomer Wealth Transfer Means for the Australian Property Market
Australia is currently seeing its largest ever intergenerational wealth transfer, and over the next two decades, people born between 1946 and 1964—the Baby Boomers— will likely pass on an estimated $3.5 trillion to their children and grandchildren — the Gen Xers and Millennials.
For investors, understanding what this wealth shift means is critical, as it has the potential to change the dynamics of the entire Australian property market.
More buyers and more investors in the market
An immediate impact of the Baby Boomers passing on their wealth is that younger generations are going to be able to access more capital, resulting in them being better able to buy property either as investors or owner-occupiers.
Early indications are that these Gen Xers and Millennials are motivated to buy property, with research from AMP Capital finding that more than 40% of Millennials who have received or are likely to receive an inheritance intend at least some of that cash to be invested in property.
However, a consequence of this for other investors is that there is going to be greater competition for all types of property. This likely to result in upward pressure on prices, particularly in the country’s most desirable regions, and areas with the most potential for growth.
Investors are changing their preferences
The growing number of younger people looking to buy property also means a likely shift in the overall preferences of the market.
What are becoming increasingly popular are dual-purpose properties, i.e., houses that can be rented out on a short-term basis or as holiday homes, or have the potential for future development.
The most immediate impact of this change is already being felt in an increase in values in regional markets. Data from CoreLogic shows that regional growth areas outpaced growth in capital cities by 1.7% over the previous 12 months, and this seems likely to continue thanks to the younger generation of buyers entering the market.
Shrewd investors should therefore be looking at these sorts of ‘growth corridors’ as potential markets where prices are likely to trend upwards.
More supply and opportunities for redevelopment
At the same time, significant numbers of Baby Boomers are retiring and looking to sell up, in order either to downsize or move into retirement living.
The consequence of this is expected to be larger family homes coming onto the market in greater numbers. As these types of older properties are generally built on larger blocks of land in well established suburbs, they present opportunities for investors looking to add value to their portfolios as well as property developers.
It could well be the case that in these sorts of areas more duplex conversion, knock-down rebuilds and blocks suitable for subdivision come onto the market, with the result being that they become more affordable.
At the same time, as a significant proportion of the population ages, established family homes could likely come on the market in order to pay for the owners’ aged care or as part of the settlement of their estates.
Impact of inflation and government policies
Another effect of this generational wealth transfer is expected to be inflation in house prices as a consequence of greater numbers of buyers able to access the market and competition for properties increasing.
How governments respond remains to be seen, but they may well respond with changes to benefits derived from negative gearing, concessions on stamp duty and capital gains tax.
This means that investors need be aware that changes to tax and lending policies could impact on the potential profits to be made from investment properties.
Be prepared for an evolving property market
The Australian property market is undoubtedly evolving as a result of Baby Boomer wealth transfer, and this is creating both opportunities and challenges for investors.
At Power of Property in Adelaide, experienced property strategists Michael Lawton and Danielle Charlton have experience and expertise in the specific needs of investors who want to use money they inherit to buy property.
Michael and Danielle have many years’ experience in sourcing high-performing investment properties, financial structuring and strategic planning. They provide tailored advice for investors looking to leverage opportunities, reduce risk and maximise their long-term returns.
Get in touch today to book a free property investment strategy session.