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Filling the gaps in property as statisticians play soothsayer

A BIG increase in WA’s retiree population has prompted a spike in retirement property developments.

Despite the obvious growth in this market, some developers claim it’s a battle to secure funding for construction.

What looked like an easy investment strategy has been met with resistance from some banks and institutional investors.

There are a number of successful operators in the national market but industry evidence suggests this is a long-term property investment.

From an investment point of view, retirement villages require a higher level of ongoing management than other residential developments in the market.

D J Carmichael head of research Peter Strachan claims the ageing population and the strength and size of the baby boomers will drive investment in high quality retirement developments.

“The demographics are very favourable for this type of development,” Mr Strachan said.

DJ Carmichael’s research suggests the annual spend on aged care is in the vicinity of $6 billion, with industry statistics indicating the need for an additional 33,000 beds.

Mr Strachan said this ongoing demand could drive growth in the companies such as the DCA Group, which has recently acquired two new aged-care facilities on the east coast.

“The baby boomers are confronting this issue for their parents and the developments our grandparents went into are just not acceptable to this group,” Mr Strachan said.

The nature of the development will determine its success in the marketplace and its capacity to attract investment.

A development in Swanbourne, owned by the national Arton Retirement Villages, has been withdrawn from the market following lacklustre sales.

Real estate industry insiders suggest the design of the development and the high cost of units has made it very difficult to sell to retirees.

“To be successful developments need to be multi staged with self contained living units, motel-like living and then high level care facilities,” Mr Strachan said.

Developments with guaranteed buy back contracts deliver a one off lump-sum payment when a resident leaves the development.

In a high turnover environment, there’s the potential to make good returns.

There are several operators that separate the management of the actual development from the property, in this case the property is often owned by a property trust.

“With this you get two different rates of return,” Mr Strachan said.

“One is the rent and the other is a more difficult business, and you expect a higher rate of return.

“There are a lot of people looking at this, Greg Paramor said he likes the retirement sector.”

A spokesperson for BankWest said the bank was conducting business with a number of retirement villages.

“We see aged care as a growing sector but we do view each develop-ment on its own merits,” he said.

Cameo Estates is a local retirement village company that is looking to move into the eastern states in the near future.

Cameo Estates director Stephen Dean said the business model for the industry was not well understood by the banks or the Government.

Mr Dean is also an executive director of the Retirement Village Association of WA.

“The biggest problem is funding because banks don’t like being involved, it’s just too complicated,” Mr Dean said.

“Equity funding from people is also very hard because it’s long term.”

“We’re trying to get people involved but there’s too much other stuff going on in the financial world.”

BGC addresses the investment difficulties for organisations through funding the construction of the development.

This allows not-for-profit organisations to pay for construction after the units have been sold.

“I believe the Federal Government likes to promote the in-home care packages because they’re cheaper,” BGC Constructions general manager Gerry Forde said.

“What we’re saying is we can design, construct and build a development and we can fund a lot of it,” he said.

“One way is we build independent living units and wait until they (the operator) get their money from selling it to pay for the construction.”

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