How baby boomer downgraders may affect commercial property investments

You may recall several blogs in the past about baby boomers, explaining the effect they will have upon the property market — both residential and commercial.

In 2005, I warned investors that: If you hadn't sold your traditional inner-city family home by 2010-11, you had better be prepared to hold it until 2025.

My reasoning for this was not that there would be any fewer buyers. Rather, they would be five times as many of these homes on the market — as baby boomers sought to downsize en masse.

Based on the recent buying frenzy (and the regular 70%+ clearance rates) for houses each weekend this year you may feel I had been somewhat mistaken.

However, you need to keep in mind that the GFC had effectively put everything (and everyone) "on hold" for about five years. And the residential market is merely playing catch-up, on both price and activity.

Anyway, an article appeared on page five in the weekend Australian Financial Review entitled: "Baby boomers set to flood the market with family homes", which caught my eye.

So, what will this mean?

For those boomers seeking to downsize, it will mean a growing number of similar competing listings on the market. But with no additional buyers, for these out-moded homes.

Many of them will be in need of major upgrade work. And some will have reached the point, where they only represent land value.

Therefore, you will soon face the likelihood of downward pressure on pricing, in order for you to achieve a sale.

And this new reality will certainly have some unexpected consequences:

  1. What you once looked upon as your de facto superannuation will be eroded;

  2. You will have less to spend on your new "smaller" home or apartment; and

  3. The inheritance available to your children could effectively be trimmed.

Will this affect commercial property?

On the face of it, you would probably expect not too much impact at all.

However, during the early 2000s, many investors use the untapped equity in their homes, to set up lines of credit.

And then, used them to purchase one or more solid commercial investment properties.

The commercial properties themselves may be performing well. But it is the LVR for the line of credit, which will concern your bank over the next 10 years — as the market falls away, for your traditional family home.

As such, you may find yourself having to sell the commercial property to keep your family home. Or be forced to sell the family home, in what will soon become a soft market.

Bottom line is fortunately, most of my clients will have already taken the necessary steps to avoid this dilemma.

However, with the residential market running hot at the moment, you still have a small window in which to resolve any exposure you may currently have.

Chris Lang is an advisor to commercial property investors, sell-out author and regular speaker on how to invest in commercial property.

You can visit his website Property Edge Australia to help you get the most out of your commercial property investing.

Chris Lang

Chris Lang

Chris Lang is an advisor to commercial property investors, sell-out author and regular speaker on how to invest in commercial property.

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