{"id":63382,"date":"2014-11-09T17:18:15","date_gmt":"2014-11-09T22:18:15","guid":{"rendered":"http:\/\/countingpips.com\/?p=63382"},"modified":"2014-11-09T17:18:15","modified_gmt":"2014-11-09T22:18:15","slug":"retirees-cashing-out-for-the-wrong-reasons","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/11\/retirees-cashing-out-for-the-wrong-reasons\/","title":{"rendered":"Retirees: Cashing Out for the Wrong Reasons?"},"content":{"rendered":"
November 9, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

Depending on whose data you read, the average superannuation<\/strong><\/a> account balance for today\u2019s retirees isn\u2019t healthy.<\/p>\n

The Australian Institute of Superannuation Trustees says the average balance for men is $198,000 and $112,000 for women. <\/p>\n

Bloomberg reported that it\u2019s closer to $151,000 and $133,000 for men and women respectively.<\/p>\n

Truthfully, the average number doesn\u2019t matter when you consider a modest retirement lifestyle requires around $355,000. In case you were wondering, modest means food and shelter. Not yearly jaunts to Europe.
\n Whichever way you look at it, today\u2019s balance won\u2019t fund a retirement.<\/p>\n

However, the same Bloomberg data says that the net worth of the average Australian is around $1 million. And not surprisingly, more than half of that is in the family home. <\/p>

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With such low super balances, many retirees will have no choice but to sell the family home. <\/p>\n

Of course, then there\u2019s the question of where to live. Property prices<\/a> in Australia aren\u2019t cheap. But the sale of the house must outlast their years\u2026even if only by a little. <\/p>\n

 <\/p>\n

Chances are they don\u2019t want a granny flat in the back yard. It wouldn\u2019t matter anyway. New Australian block sizes have become so small you can barely fit a dog kennel in the backyard, let alone a joint for the in-laws. <\/p>\n

No. Instead, many retirees are looking to planned communities. Or lifestyle villages, as developers like to call them.<\/p>\n

And these communities are large plots of land, generally old caravan tourist sites. The developers come along and plan some narrow roads and amenities, such as recreation halls and pools. <\/p>\n

In addition, the houses are smaller and more manageable. But to keep them cheap, most developers plan for a manufactured home to go on the site. <\/p>\n

There\u2019s already a handful listed on the ASX<\/a>. The two most commonly known companies are Aveo Group [ASX:AOG]<\/strong> and Ingenia Communities [ASX:INA]. <\/strong> <\/p>\n

Given that there\u2019s 5.5 million baby boomers set to leave the workforce in the next 10\u201320 years, you can expect this market to grow. <\/p>\n

And there\u2019s a couple of reasons why. <\/p>\n

Cost is the first one. Likeminded neighbours are another. However, a key difference from retirement homes is that these planned communities generally don\u2019t have a departure fee. <\/p>\n

Instead, the site owner \u2014 say Aveo Group for example \u2014 charges a monthly rent for use of the site. <\/p>\n

Now here\u2019s where the gloss might start to wear off.<\/p>\n

There\u2019s a strong chance the house will never increase in value.<\/p>\n

This is because you only buy the house. Not the land. <\/p>\n

This market is still quite new. So the long term value of manufactured homes isn\u2019t factored in yet. In fact, chances are that these sort of homes will depreciate over time. <\/p>\n

Now, I\u2019m not saying this is a bad thing. Finding somewhere affordable and manageable for your retirement years is important. <\/p>\n

However, if you\u2019re expecting your final earthly home to be a financial windfall for your children, you may need to think again. That\u2019s because land values determine the price of your home, not the house itself.<\/p>\n

This concept was recently addressed in Phil Anderson\u2019s Cycles, Trends & Forecasts <\/em>newsletter.<\/p>\n

In his controversial newsletter, Phil sets out to inform subscribers how the 18 year real estate cycle functions. He says that once you know the cycle, you can forecast it. <\/p>\n

In his most recent update, Phil looked at one ASX listed company building retirement communities. <\/p>\n

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\u2018Companies like this<\/em> deliberately capture the economic rent in cases like this. And they should have solid earnings \u2014 if managed successfully \u2014 that could run for years.<\/em>\u2019<\/p>\n<\/blockquote>\n

There\u2019s five lifestyle community developers listed on the ASX. However, as our population ages, I will expect this category to grow. But as noted in Phil\u2019s fortnightly update, these companies are capturing the economic rent. <\/p>\n

Many people don\u2019t understand that. And Phil argues that, even those who do, still don\u2019t truly get it.<\/p>\n

As Phil says, <\/p>\n

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\u2018Ricardo\u2019s Law of Rent states, simply, <\/em>that the economic rent is not a cost of production. A house costs pretty much the same to build, wherever you build it \u2014 wages are the same, and materials costs are the same. But the selling price will depend on the location.<\/em><\/p>\n

\u2018So builders, for example, will bid more for the best locations. That money doesn\u2019t go to the workers building the house, nor is it spent on improving the materials used. It purely benefits the owner of the land. This bid is what Ricardo was first to identify as a \u2018surplus\u2019: the economic rent. Property investors know it today as \u2018locational value\u2019.<\/em><\/p>\n

\u2018Wherever a price is put on this locational value of land, a property cycle will \u2014 must \u2014 develop, as speculators and companies chase land prices higher and higher, reducing the proportion of wealth being invested in either creating jobs or productive businesses.<\/em><\/p>\n

\u2018This cycle is beyond the control of central banks and beyond the control of government. The enormous credit created by banks based upon this value gives us the violence of the property boom, then bust. The real estate cycle is the most important market cycle.<\/em>\u2019 <\/p>\n<\/blockquote>\n

As controversial as it may be, Phil argues that real estate is more important to the market cycle than people realise. <\/p>\n

Suitable and affordable homes are likely to encourage many retirees to consider planned communities. After all, as property prices increase, people will look for alternatives. <\/p>\n

This means companies like Aveo and Ingenia are positioning themselves to capitalise on rising land values.<\/p>\n

Essentially, these planned communities will become enormous land banks in the future. <\/p>\n

Exactly what will the value of this property<\/a> be two decades from now? I\u2019m not quite sure. But Phil has an interesting take on what\u2019s coming for the Aussie property market.<\/p>\n

Shae Smith,
\nEditor, Money Weekend<\/em> <\/strong><\/p>\n

Join Money Morning on Google+ <\/u><\/a><\/strong><\/p>\n

The post Retirees: Cashing Out for the Wrong Reasons?<\/a> appeared first on Stock Market News, Finance and Investments | Money Morning Australia<\/a>.<\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au Depending on whose data you read, the average superannuation account balance for today\u2019s retirees isn\u2019t healthy. The Australian Institute of Superannuation Trustees says the average balance for men is $198,000 and $112,000 for women. Bloomberg reported that it\u2019s closer to $151,000 and $133,000 for men and women respectively. Truthfully, the average number doesn\u2019t […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-63382","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/63382","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=63382"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/63382\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=63382"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=63382"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=63382"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}