Prepared for Chan & Naylor by The Narrative (July 2011)

Australian Property Investor

The Baby Boomer Sea Change Dilemma

Nicole Navarro

17 July 2011

As the property market crab crawls sidewards or shovels sand, what will be the impact on New South Wales'

sea change baby boomers, particularly as many decide to stay put?

Ten years ago demographer Bernard Salt predicted that Port Macquarie, among other New South Wales' sea

change favourites Forster and Coffs Harbour, would "blossom" as a result of "the big shift" of baby boomers

(Australians born between 1945 and 1964) selling up their homes in bustling Sydney and downsizing to a new

apartment with water views in a regional beachside town.

Salt was spot on. They did! Between 2002 and 2008 many baby boomers invested their leftover cash after

downsizing their property and used their superannuation to purchase an investment

unit, or to fund daily living expenses like a golf club membership, a bowls club mid- week special roast and the

multiple pairs of walking shoes and wide-brimmed hats required for life in a beach town.

The sea change towns were booming, with construction beating a steady rhythm along the coastline or just

minutes from it and consequently jobs were also surging, giving younger locals more reasons to hang around,

apart from the obvious attractions of the small town beach lifestyle.

So what took the oomph out of the coastal shift? Salt believes it was the global financial crisis (GFC), with soon-

to-be baby boomers watching superannuation funds erode away and plans to trade in the city life for a sea

change lifestyle put on the backburner.

These sea change towns watched sullenly as the once supercharged cranes dwindled away from their skylines

and an oversupply of apartments was rolled out into the local market.

"The outlook must be considered to be subdued," says Salt. "There won't be the same competition for the

beachside until confidence returns for Sydney metro markets, where it's still lacking in consumer confidence.

"On the other hand, if you're holding for 10 years it might mean now is the time to buy if you don't expect a full

recovery for two or three years," he says.

"By the end of the decade there'll be a return to the higher beachside value with the increasing number of baby

boomers."

Salt says baby boomers aren't confident right now; they're sitting tight and staying in jobs longer because of

their concern about superannuation, instead of focusing on colour schemes for their future apartment.

Not even the State Government's stamp duty cut for the over 55s who downsize has made much of an impact.

"The longer baby boomers stay put in their current lifestyles the greater the pent- up demand for beachside

property, then they'll spring forth. It may not happen this year or next year but when it happens it (the pent-up

demand) will suddenly release," says Salt.

He says it should start to loosen up next year and by 2015 baby boomers will be hitting the sleepy beach towns

again in hordes.

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But Salt adds that this trend 'to stay put' is not only limited to baby boomers; it stretches across the board, with

interstate migration slowing at every border.

Ken Raiss of tax and property accountancy group Chan and Naylor savs the sea change lifestyle was even

starting to lose its shimmer for baby boomers in the lead- up to the GFC, simply because they realized it "wasn't

the utopia they thought" it would be.

Instead, he says, many baby boomers found that because of the distance, their friends and children didn't visit

them as often as they'd originally envisioned.

Baby boomers also found that the self- managed superannuation funds (SMSF) many used as the vehicle to

buy the new sea change unit could actually be highly restrictive in terms of what type of property could be

purchased and what improvements could and couldn't be done with it, he says.

Raiss says what baby boomers are being told is 'you can buy a property with debt but you can't do a reno on

that property with the debt otherwise you contravene the law of the asset use and stiff penalties apply',

sometimes up to 50 per cent of the asset value.

Basically you can't improve that asset from the original state it was bought in, he says.

The other rule is you can only buy one of each asset type at a time, for example only one property title not two,

says Raiss.

He says buying a new unit with a car space on one title is the easiest way to get around this.

"You can buy off the plan but most of these apartments have the garage car space on a separate title so you

need another set of documents. You need to have your loans structured correctly to do this," says Raiss.

"Building a house on a Hock of land with your super fund is difficult because a super fund can't buy a block of

land and then let you build the house because that's considered an improvement as the original asset is the

block of land."

However, SMSFs are still proving increasingly popular with baby boomers, with growth of 20 per cent per

annum, says Raiss.

Of this growth, property has increasingly become the hottest asset choice of SMSF holders since the

government changed the legislation in 2007, he says.

Property makes sense for baby boomers, says Raiss, because at age 60 the profit of their super fund attracts a

zero tax rate rather than a 15 per cent rate prior to 60.

So while the next couple of years will be a time of consolidation for baby boomers as they build their confidence

and set up a SMSF, then downsize their house in the city to a unit by the sea, sea change towns will simply

have to wait.

But not all sea change towns will fall limp under the national slowdown in fact, with a major hospital and airport

upgrade on the way, and tourism still steady, Port Macquarie may just be one of the exceptions.

Port Macquarie the exception

On NSW's mid-north coast, less than 400 kilometres north of Sydney, exists the tourist town of Port Macquarie,

affectionately known as just “Port”.

Port Macquarie has more recently become synonymous with one of the nation's most powerful independent

politicians, Rob Oakeshott, after his deal with Labor saw Julia Gillard officially step into the role of Prime

Minister and his own electorate of Lyme receive $110 million in federal commitments to the region's health

service and hospital upgrade.

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According to Coastal Buyers Agent Doug Batt, the residents of Port Macquarie are a resilient bunch, particularly

after seeing their local councilors sacked and an administrator step in for a four- year term hack in February

2008.

The Port Macquarie-Hastings councilor sackings occurred over a $35 million construction blowout of the

Glasshouse cultural and entertainment centre, from the initial estimate of $6 million to a whopping $41 million.

It's been an issue that's divided the town.

After more than two years of operating under an administrator, a new general manager was recently appointed

and councilor elections are set to follow in September 2012.

So transitioning, back to a 'business as usual' attitude, council is gearing up to roll out its $110 million Port

Macquarie Base Hospital upgrade, securing up to 250 new permanent jobs spread across the new operating

theatre building, the new 30-day in-patient unit, an expanded critical care unit, and 12 new surgical beds. The

boosted number of construction jobs for this project will be the delicious cherry on top for this beachside beauty.

Not only will the slightly-above state average unemployment rate be a major benefactor of this major upgrade,

the expansion will also provide a more sophisticated and efficient health service to the ageing population.

Construction jobs will also be boosted when the Port Macquarie-Hastings Council further widens its airport run-

ways, further expands the passenger terminal and carpark facilities, and upgrades the taxiway. Already the

design has been approved and its time for action.

Diane Deland of Raine and Horne Port Macquarie says the airport was already upgraded in 2008 with

expanded runways and a new departure lounge to cater for passenger growth into the regional city, but now it's

time to take it one step further with greater potential for Virgin and Jetstar to service the city.

Direct flights to Brisbane would be a huge boost for the tourist city, rather than mostly focusing on visitors from

the Sydney market, says the Port Macquarie Chamber of Commerce executive officer Liesa Davies.

Deland says there's also a possibility of direct flights to Melbourne. Then there must be a mention of the Oxley

Highway upgrade, currently transforming the arterial into a dual carriageway and due for completion by the end

of the year, says Deland.

With a population of 39,219, according to the Australian Bureau of Statistics 2006 Census, and a population

growth of 1.7 per cent over the recent year, tourism is big business for this small town.

Already the Port Macquarie airport services the third fastest growing domestic route in the nation from Sydney

to Port Macquarie. Expanding the airport and starting regular direct flights to and from Brisbane would open up

an entirely new tourism market for the town and have further positive economic impact.

While the baby boomer arrival may have slowed, its tourism numbers haven't. Port Macquarie Hastings Council

manager of tourism and events Linda Hall says while tourism activity across the nation and state has been

subdued lately, Port Macquarie is bucking the trend.

In tourism industry terms, Greater Port Macquarie received more than 867,000 domestic day visitors for the

year to December 2010, an increase of 35 per cent from the previous year - the equal highest on record, says

Hall. She says the reason lies in the beaches, the pristine forested landscape, mountain ranges and lakes, cafe

and restaurant culture, and the perfect climate.

But Hall adds that their events program also contributes to drawing crowds; this year was their first Wintersun

Festival, previously held at Coolangatta on the Gold Coast.

Elders Real Estate Port Macquarie director Bill Bodkin even suggests that smaller towns surrounding Port

Macquarie are starting to open up due to Port Macquarie's increased traffic. He lists Bonnie Hills, Laurieton and

Lake Cathie.

"What was once a sleepy hollow eight or nine years ago is fast changing in the direction of a 'Noosa'," says

Batt.

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Unfortunately for Port Macquarie it's just a one-industry town though, he says. "Apart from tourism there's no

primary industry."

Essential Energy is probably Port Macquarie's biggest employer, says Davies.

Batt explains that the dairy industry and timber logging were once strong but says there's no money in the dairy

industry any more and the restrictions placed on logging just became too difficult.

However, Bodkin says Port Macquarie is starting to expand its industrial base in manufacturing.

"A parcel of land has been rezoned for more industry; a new industrial development is already occurring there,"

he says.

Port Macquarie has also received funding to undertake a feasibility study on expanding higher education

options in the area, which could see the Port Macquarie small base for the University of Newcastle and the

TAFE expand, says Bodkin. Already 'Port' offers an unbelievable number of schools. Between private and

public, primary and high school, just less than 20 schools can be counted.

The big brand grocery stores all exist in Port, along with a Bunnings super centre and two main shopping

centres, both positioned in the CBD.

"The place has always progressed in population growth, particularly from empty nesters with money from

Sydney and younger families arriving for the construction work and the relaxed lifestyle," says Batt.

Also progressing is the revived town centre masterplan committee, to invigorate the CBD and river foreshore.

Apparently a foreshore masterplan is sitting with the State Government for approval.

The Housing Mix

Don't expect to find glorious old heritage houses and buildings in Port Macquarie, because before restrictions

on heritage housing demolition existed, the town was wiped of its historic buildings and replaced with early '70s

housing instead, says Batt.

An entry-level three-bedroom house less than 10 years of age and requiring only a lick of paint and a new front

fence can today be found for a little more than $300,000, Batt says.

The rental return on a house between 5330,000 and 5380,000 is between $400 and $450, he says. Batt says

this is the investor's smartest option, particularly if it's positioned close to the CBD or the Shelly Beach area.

He suggests investors avoid housing near the airport, because its where the majority of government housing

exists.

Bodkin says there's good news for investors because rents are on the rise due to the high level of demand from

renters and the tight vacancy rate of 1.3 per cent. It's the reverse for units though, says Batt.

"Developments have been sluggish over the past three to four years, but that's been statewide," he says.

Batt says apartments aren't being built "on-spec" in Port Macquarie at the moment because developers are

finding it difficult to find the viable profit margins.

"At the moment Port is suffering from a lack of land to subdivide; there aren't any blocks left."

Prepared for Chan & Naylor by The Narrative (July 2011)

Prepared for Chan & Naylor by The Narrative (July 2011)

Prepared for Chan & Naylor by The Narrative (July 2011)

Prepared for Chan & Naylor by The Narrative (July 2011)