Downsizing secrets unlock potentially massive savings

t’s no surprise that downsizing is a growing trend across Australia. According to the Australian Bureau of Statistics, people aged 65 and over make up 17 per cent of the total Australian population.

This figure is set to grow to around 23 per cent by 2063.

With Australia’s population ageing rapidly, the demand for smaller, low maintenance dwellings is on the rise.

As a result, apartments are becoming an increasingly appealing downsizing option, with a third of Australian downsizers now embracing apartment living.

National price growth also remains steady, with CoreLogic data showing a 4.9 per cent price increase across combined capital cities in 2024.

Many older Australians have already flocked to capitalise on the favourable market conditions, with 26 per cent of over 55s surveyed by the Australian Housing and Urban Research Institute (AHURI) already having downsized.

A further 29 per cent have considered it but not yet taken the leap.

Downsizers are also changing the dynamics of the property market in significant ways, and certain suburbs stand to benefit most from changing demographics and household compositions.

Downsizing presents financial hurdles

According to a downsizing survey conducted for Downsizer, three-quarters of Australians cite lifestyle or finances as their primary reason for making the move.

Transitioning into a smaller home not only lightens the burden of home maintenance – reducing stress and freeing up time – but also offers downsizers the ability to choose a location that suits their ideal lifestyle.

There are also several financial benefits associated with downsizing. It releases equity that can be used to boost retirement income. A smaller dwelling also often bears a lower mortgage and cheaper utility rates that frees up cash flow for the finer things in life.

While the financial benefits are a major drawcard for potential downsizers, it isn’t as simple as trading your current home in for a smaller one.

Downsizer.com describes typical older Australians as asset-rich but cash-poor, meaning most of their wealth is tied up in illiquid assets such as property.

This can pose a problem when it comes to placing a deposit, preventing homeowners from accessing the cash needed to secure a new home. Innovative financial solutions, like a deposit bond, are one cost-effective way to ease the transition.

Downsizer government incentives emerging

With financial feasibility being one the largest barriers to downsizing, the government has stepped in to offer incentives to downsizers looking to scale down their homes.

Several states and territories offer stamp duty rebates to lessen the financial burden of transfer fees.

In Western Australia, this comes in the form of a rebate of up to 50 per cent on stamp duty for off-the-plan purchases, with no cap on the purchase price.

With WA’s property market still on the up and up, now is an opportune time for downsizers there to take advantage of the high value market.

Victorian pensioners who qualify can enjoy an exemption on stamp duty for homes worth up to $330,000. They get a scaled discount for properties worth up to $750,000. As the median house prices in non-metropolitan regions align with these thresholds, this may reflect a desire from the Victorian government for downsizers and empty nesters to make the change to these regional areas.

Buyers may get stamp duty concessions or deferral options in New South Wales and Queensland under certain conditions.

Purchasing off-the-plan is one of the most popular options among downsizers, offering them plenty of time before settlement to get their moving plans in order.

With several dwellings in the one development often available, downsizers also enjoy greater choice and a less competitive purchasing environment when buying off-the-plan.

Alongside stamp duty rebates offered by state or territory governments, the federal government introduced the downsizer superannuation contribution scheme in 2018.

The scheme allows eligible homeowners over 55 years old to contribute up to $300,000 as an individual or $600,000 as a couple from the proceeds of the sale of their home into their superannuation fund.

This scheme is superannuation’s best kept secret. The take-up of this super benefit since the scheme began in 2018 stands at only 79,000.

Innovative financing solutions are also changing the game for downsizers, offering homeowners the ability to secure a home using proof of assets instead of a cash deposit.

Of all potential downsizers, 66 per cent are expected to transact within the next two years for an expected average equity release of $543,000. Taking advantage of the downsizer superannuation concession could boost retirement incomes by $47,000 per year.

This presents an opportune time for developers to capitalise on the growing downsizer market, with a focus on creating high-quality yet low maintenance dwellings in prime amenity-filled locations.