An ever-increasing number of over 65s are considering downsizing, but demand is superseding supply.
As the generation of baby boomers enjoyed unparalleled wealth, sizeable houses were highly affordable. Now, as retirement looms, an ever-increasing number are finding it difficult to manage these sizeable homes and are naturally looking at downsizing.
Key Retirement, an equity-release advisory firm, report that a third of homeowners over the age of 65 are considering downsizing their home but are finding that there are limited options on the market. This of course results in other demographics, such as young families, being priced out of larger properties due to the limited availability.
In 2017, there were just 7,000 purpose-built homes for retirement. The result of this means that care homes are now the most undersupplied sector in the housing market. This is because a suggested 30,000 homes need to be built in order to meet the current demand.
If supply were to meet demand, the rest of the housing chain would see the positive effects, through larger properties being available for those that need it. However, we are currently seeing no plans to meet this demand.
Many over 65s say they would love to free up funds tied in equity to explore and gift to their families, and so they feel frustration holding onto large property they no longer need. Downsizing would naturally free up available funds to do this. A report by Demos highlights that in 2017, a pensioner could release as much as £80,000 in equity if they were to downsize.
Normally there is no inheritance tax to be paid if property is given as a gift to a family member. People can also give away up to £3,000 a year in gifts without this being added to the value of the estate, in relation to inheritance tax upon the individual’s death.
Those aged 55 and over can access their pension pot. These individuals will need to be aware of how much they can withdraw without being subject to tax, which is up to 25% as a lump sum. This can be used for renting another property or reinvesting elsewhere.
It´s not only financial
Of course, the benefits of downsizing are not only financial. Modern care homes are the perfect environment for over 65s. Stairlifts, wider corridors and softer surfaces minimise the risk of injury. Demos Report highlights that 85% of over 55´s living in retirement villages and care homes said they felt a positive sense of community. When comparing this to 49% feeling the sense of community whist living on their own, the benefits are clear.
This would appear to be a result of experiencing days out that appeal to the residents, with wine tastings, visits to local areas and attractions and fine dining being some examples. Significantly, care homes also relieve pressure on the NHS. Minor problems can be dealt with in house, and after major hospital visits, the care home can readily deal with the patient post visit.
A potential investment opportunity?
Like HMO property investments, care home property investments are a fantastic investment opportunity. Because of the lack of existing accommodation for those seeking care homes, demand is higher than supply. High occupancy rates result in positive rental yields, with returns being as much as 10%.
When identifying these investment opportunities, location is key. For instance, areas such as the South-West and North-East have a higher percentage of over 65´s, so these areas are naturally targeted. Over 65´s are far less likely to relocate compared to other age demographics.
With the UK population continuing to get older, now is a great time to invest in care home property. FJP investments have carefully identified the Carlauren Group, who are responsible for acquiring, renovating and operating luxury care home accommodation, as a great investment opportunity.