Across Australia, hundreds of thousands of people are living in large family homes that no longer meet their needs or their lifestyle.
Typically, these people are aged over 50 and are weary of the ongoing maintenance and repairs these homes require. (Like, who really enjoys mowing the lawn?) At the same time, the homes these over 50s occupy are typically among the most expensive in their neighbourhoods, because they have a large land and house size.
In NSW alone, there are estimated to be more than 500,000 homes occupied by an older single or couple, with two or more empty bedrooms. Across Australia, there are estimated to be anywhere from four million to seven million empty bedrooms in homes.
A June 2017 survey by Downsizing.com.au and LJ Hooker found that around a third of over 50s are looking to move from the family home to more suitable and well-located accommodation – in other words downsize.
However there's a number of barriers and issues to consider, so we’ve prepared this handy guide giving five tips on downsizing.
1) Be informed - get expert advice
According to a 2014 Australian Housing and Urban Research Institute (AHURI) survey, potential downsizers currently suffer from an information vacuum.
There’s a dearth of useful government online information available, alongside a shortage of experts who can guide them through the downsizing process.
The same report found that, if people do have questions about downsizing, they usually consulted family and friends in the first instance.
It's important to seek out expert financial and legal advice about downsizing options before making any decision. You need to consider the impact on your lifestyle and finances both now and in the future, especially if your health or circumstances change.
2) What features are you looking for in your new home?
According to the 2014 Australian Housing and Urban Research Institute (AHURI) survey, the “dream downsizing home” is:
· Smaller in size (such as having a more manageable yard) than the current home
· Easy to access and to move around in, and preferably with only one level
· A lifestyle improvement, particularly in terms of good entertaining areas
· Close to shops, health services and public transport
· Located in an area which is desired by the downsizers, often close to where they currently live, or offering lifestyle benefits
· Something which delivers financial savings, as a result of discharging a mortgage or collecting capital gain
· Alongside likeable neighbours
People first need to find these sorts of downsizing-friendly properties, before they can consider selling the family home.
And one big tip here – don’t underestimate the importance of being near neighbours you like!
If you’ve been living next door to the same neighbours for decades, it’s a scary thought to become a stranger in a new neighbourhood. As such, advice about friendly neighbours, streets and communities will be very useful.
3) Research your State-by-State downsizing incentives
Different States have different incentives which could be used by downsizers, primarily through stamp duty rebates or concessions.
While unfortunately NSW is not much help in this regard, the Australian Capital Territory and South Australia and Northern Territory all have incentives.
4) Know the national incentives for downsizing
It’s worth knowing that the Australian Government will next year introduce superannuation-based downsizing incentives.
From July 2018, the government will make it easier for over 65s to contribute up to $300,000 from selling the family home into their personal superannuation fund. Find out more here.
This $300,000 contribution will be exempt from the existing age and work tests for people aged over 65.
This would mean, for instance, that someone who is aged over 75 who is currently not allowed to make voluntary superannuation contributions will now be able to do this when selling the family home.
Similarly, currently if you are aged 65 to 74, you must have worked for at least 40 hours over 30 consecutive days in the financial year to be allowed to make a voluntary contribution. Next year, that rule will also not apply for contributions from the proceeds of the family home.
This incentive is likely to encourage many self-funded retirees to downsize.
5) Know the financial barriers to downsizing
As much as the above superannuation incentives are a great help, it doesn’t overcome two financial barriers to downsizing.
The first of these barriers is if stamp duty needs to be paid on the purchase of a new home (subject to the State by State incentives mentioned above). However, it’s worth noting that stamp duty does not apply to many of the “over 50’s” lifestyle villages and retirement villages which are attractive to downsizers, and which are featured on Downsizing.com.au and SeniorsHousingOnline.com.au
The second is the potential that the excess money collected from the sale of the family home could impact on pension access. So it's important to consult a specialist financial adviser on your situation.
But irrespective of these financial considerations, many home owners reach a stage where their personal circumstances are such that they really need to move, or to pay out their mortgage, and so they are ready to sell up in order to access the huge capital gain accrued in the family home.
The main thing is to be prepared, and get expert legal and financial advice, so you fully understand all the implications - both for your current situation, and in the event things change later on.