Downsizing is emerging as a potential solution for the many Australians who are facing financial uncertainty when government and corporate COVID-19 support schemes begin to phase out from the end of September.
The Australian Government and the Australian Banking Association have announced changes to their support schemes, both of which will apply in late September.
From 28 September, many businesses will lose access to the JobKeeper subsidy altogether. For those who do continue to be eligible past 28 September, the Australian Government’s JobKeeper payment rate of $1,500 per fortnight will be reduced to $1,200 per fortnight. The payment then reduces again to $1,000 per fortnight from 4 January 2021.
In addition, from 28 September, lower payment rates will apply for employees and small businesses that worked fewer than 20 hours per week in the relevant period.
Mortgage payment deferral scheme
In addition, from the end of September, many homeowners will come to the end of their six-month mortgage payment deferral period. One in ten home loans is currently deferred, with these loans totalling $195 billion.
The Australian Banking Association has announced that a further four-month extension of the deferral period will not be automatic, but is possible. It is urging consumers who are able to return to full payments, to do so.
The above two events create significant financial uncertainty for many Australians over 50, particularly those who are out of work due to COVID-19 and facing mortgage payments.
Below are four reasons why downsizing could be a good option for these Australians, to help secure their retirement income and even potentially allow an early or unplanned retirement.
Now may be a good time to sell your home
CoreLogic data for July has shown that Australian home prices have been remarkably resilient, with only minor falls in home values in Sydney and Melbourne and some other capital cities recording increases.
This provides some confidence that it is possible for downsizers to achieve a strong price for their home.
However, as CoreLogic’s Head of Research Tim Lawless has indicated, this market resilience may not last - mainly because of the above-noted “September cliff”.
“Record low interest rates, government support and loan repayment holidays for distressed borrowers have helped to insulate the housing market from a more significant downturn,” Mr Lawless said.
“Urgent sales are likely to become more common as we approach these milestones, which will test the market’s resilience.
“Similarly, the recent concerns of a second wave of the virus and the potential for renewed border closures and stricter social distancing policies are likely to further push consumer sentiment down. This is likely to weigh on both home buying and selling activity more broadly.”
The above analysis indicates that it may be a better idea to sell now, rather than wait for a fading market once government support and loan deferral periods begin to be phased out.
Don’t forget the you can utilise Downsizing.com.au’s partnership with Agent Select to maximise the sale price of their home by choosing the best real estate agent
Take advantage of discounts on offer
Not only are family home prices currently holding up, but downsizers also have a chance to take advantage of incentives and discounts when moving into their future downsizing property.
For instance, a spokeswoman for national retirement living operator Living Choice said the company was offering $20,000 off selected homes at its Woodcroft retirement village in Adelaide, along with certainty around the timing and amount of exit entitlements when buyers eventually leave the home.
Incentives are also available at other Living Choice villages in NSW’s Sydney and Central Coast and in Flagstaff Hill in Adelaide.
Meanwhile, Palm Lake Resort is offering a $25,000 new home bonus in its Queensland resorts until December 2020. Terms and conditions apply.
Caloundra Cay Sales Manager Alysia Nechvoglod said: “People are definitely excited about it - everybody loves a discount! It’s making the decision-making process easier.”
“One couple who bought at Palm Lake Resort Caloundra Cay last week told us that they were going to use their $25,000 bonus to fully furnish their home with new furniture for this exciting new chapter of their lives.”
Living Choice and Palm Lake are by no means the only operators offering discounts - so it pays to shop around and ask questions.
Take advantage of financial incentives
Downsizing can be a tax-effective way to maximise your retirement income, and in doing so allow you to transition to retire or retire early.
For instance, the Australian Government offers a downsizing superannuation incentive.
This incentive allows people aged over 65 to place up to $300,000 per person (or up to $600,000 per couple) from the net proceeds of their family home sale into their super.
Before 1 July 2018, people aged over 75 were not allowed to make such a contribution, while people aged 65 to 74 needed to have worked for at least 40 hours over 30 consecutive days in the financial year. These rules are now being waived for downsizers.
The superannuation downsizing contribution is particularly attractive for self-funded retirees, who want to top-up their retirement income, and would not be concerned about reduced access to the aged pension.
A number of State Governments also provide stamp duty incentives which are specifically targeted at downsizers.
Downsizers can also take advantage of tax incentives which apply to land lease communities and some leasehold retirement villages, including being able to avoid stamp duty and council rates and take advantage of Commonwealth rental assistance payments.
Move to enjoy a great lifestyle
Of course, downsizing is not just about money.
In fact, a major research report released in 2020 found that around a third of downsizers did so to improve their lifestyle, while around one in five were keen to reduce home and garden maintenance.
By downsizing, you have the chance to have a fresh start in an area which ticks all your boxes - this could be a scenic coastal environment or a lifestyle-rich urban location.
Many downsizers also enjoy moving into modern communities with a holiday resort-type feel, which helps keep them socially-connected and leading an active lifestyle.