For anyone following both property prices and the cost of living in Australia, this should come as no surprise: turns out, Australians are ‘house rich’, but ‘cash poor’. In other words, they’re rich in terms of property assets, but don’t have all that much in their bank accounts.
The findings are according to new research by Australian comparison site Finder, which surveyed 497 homeowners. It found that 1 in 8 Australians (12%) — equivalent to more than 600,000 households — are planning to downsize to a smaller property in the next 12 months.
Why? Well, the majority (5%) said they wanted to unlock equity, while more than 200,000 households (4%) said they don’t need as much space as they used to. The remaining 3% (162,000 households) said they were downsizing only temporarily so that they could save money.
“Thanks to the recent house price boom, plenty of Aussies are ‘house rich’ but ‘cash poor’,” says Sarah Megginson, senior editor of money at Finder.
“Downsizing is a way to potentially lower your housing costs, if you can find less costly housing that still suits your needs,” Megginson explains. “But you have to be mindful of the costs involved in buying and selling, like stamp duty and real estate commission, because they can really erode the equity you’ve built up.”
Megginson said thanks to property price spikes during the pandemic, house values had grown up to hundreds of thousands of dollars in some areas. By moving to a smaller property, homeowners can access some of that untapped wealth, she explained.
If you’re thinking about downsizing to free up your cash, Megginson offers four things to do before you sell.
Think Carefully About Your Finances
“You may find you can achieve your downsizing goals without a home loan. If you’ve built up sufficient equity in your family home, selling could potentially fund the purchase of your new property. If this is the case, you won’t have to worry about finance. But if you do need to source a home loan, your situation could get slightly trickier.”
Beware of Buying Before You Sell
“Signing a contract for a new home while the sale of your old one is pending is a risky gamble. In the event you do buy a new home before selling your current home, you may need to access what’s known as bridging finance or bridging loans. Waiting to buy until you’ve sold your old home can save you the stress and uncertainty of having to source interim finance.”
Monitor the Market
“It’s difficult to determine the right time to downsize because it’s a very individual proposition. It all comes down to your own needs and financial goals. However, it’s still wise to keep an eye on the property market to ensure you’re giving yourself the best potential for capital gains.
“Take a look at recent auction results in your suburb to see whether you’re in an area that’s in high buyer demand. You’ll also want to pay attention to recent comparable sales to see what price other homes in the area have been fetching.”
Think About Your Future Needs
“It can be quite jarring to move from a large family home into a smaller property better suited to retirement. Keep yourself from buyer’s remorse by putting some thought into your likely future needs.
“For example, are you likely to have family members moving back in with you in the future? Are you able to keep up with the maintenance required on your new property?”