The ‘land lease’ seniors accommodation model is underappreciated in Australia, and particularly in Western Australia, but that’s unlikely to continue much longer.
Also referred to by the aspirational term ‘lifestyle communities’, the more depressing term ‘manufactured home estates’ or something else, the model is essentially the same.
That is, the senior buys a ‘relocatable’ house in a seniors’ community and enters a long-term lease for the land on which the house sits from the community operator.
As they’re buying the house and not the land, pricing is discounted between 11 and 70 per cent of typical costs, enabling a lifestyle that might not otherwise be affordable.
Further, they don’t pay stamp duty or rates, there are no exit fees, and at the more affordable end, seniors can use Commonwealth rent assistance payments to subsidise the cost of their ongoing site lease fees.
Traditionally, these villages have been tacked onto caravan parks and their tiny, densely packed, prefabricated houses look only marginally more permanent than their caravan neighbours.
There has been gradual change during the past 20 years, however, and the product has experienced a bit of a coming of age.
House quality has improved dramatically so that they look and feel more like upmarket suburban properties than ‘relocatable’ cottages.
Communities are master planned and communal amenities offer everything from cinemas, restaurants and bars to community gardens and workshops to ten-pin bowling alleys and golf simulators.
One Queensland operator, Living Gem, offers communal Jayco motor homes for rent, while another offers communal boats.
The industry is maturing and what was a niche market is now increasingly attractive to institutional investors.
Stockland announced an aggressive expansion into the sector last July with the acquisition of Queensland operator Halcyon for $620 million, and then upped the ante again with its recent announcement of a $4 billion capital partnership with Mitsubishi Real Estate Asia to develop and own land lease communities.
Mirvac recently announced that it was looking to go ahead with two pilot projects in Victoria and there has been a swath of other mergers and acquisitions in the past 12 months as investors recognise the sector as a bona fide investment asset class.
Included here is Ingenia’s $270 million acquisition of Seachange Lifestyle Resorts. In WA, the story is more muted, and perhaps because the (until recently) depressed property market has acted as a break here, given sale of the family home is typically required to finance a buy-in.
Currently there is only one player of any size servicing fewer than 3,000 residents: specialist operator National Lifestyle Villages (NLV) owned by investment management company Serenitas.
So, with a forecast market penetration of 3.5 per cent, there would seem to be a significant undersupply in WA both in terms of numbers and operators.
But it seems only a matter of time before the ‘growth machine’, as it has been called, bolts from the starting gates.
While the big institutional investors are likely to dominate, there is opportunity for smaller plays.
In this respect, my money is on niche operators who deeply understand and are committed to their market.
One example here would be Providence Lifestyle, which now has four existing and upcoming communities in WA that offer master planned communities with high-quality fitouts and a wide range of resort-style amenities.
Another example would be existing retirement village operators tired of the over-regulation of the Retirement Villages Act, who want to sell a simpler product and, importantly, who already understand how to create and nurture seniors communities.
Also notable would be those land-banked not-for-profit retirement village operators whose affordable seniors housing mission fits nicely with land lease and who can also access some very helpful tax exemptions.
Land lease has been around for a long time, in a well-known but thoroughly unattractive guise and, consequently, ignored as a viable seniors’ accommodation model.
However, land lease operators are breaking out and tapping into the psyche of their customer base like never before, and arguably better than their close competitors in the retirement village sector.
Amber Crosthwaite is a commercial lawyer specialising in seniors living, aged care and disability.
