The Sydney suburbs where one compromise can make home owners the most cash

Downsizers in every single Sydney suburb will be left with a sizeable sum of cash when moving from a typical house to a unit within the same neighbourhood, new data shows.

The gap between houses and units is most pronounced in blue-chip suburbs where downsizers can be left with millions of dollars to spare after trading down.

Bellevue Hill topped the list with a gap of $7,815,000 between the median house and unit price on Domain data. It was followed by Vaucluse where the gap is $6.49 million, then Bronte at $4,169,000.

They were among dozens of suburbs where downsizers could be left with more than $1.5 million after swapping a house for a unit. Medians were only recorded for suburbs with a minimum of 50 sales last year.

Sydneywide, downsizers could have almost $800,000 to spare due to a record gap between house and unit prices last quarter. The compares to a gap of about $316,000 in early 2016.

Domain chief of research and economics Dr Nicola Powell said cashed-up downsizers were driving demand and price growth in the unit market and also providing a funding boost to their children and grandchildren.

“Downsizing releases that capital to do that bucket wish list in your golden years. We’re seeing grandparents are passing on inheritances earlier,” Powell said. “Most people’s biggest financial asset is their home, and when they downsize, it frees up a significant amount of money.”

As most downsizers entered the market decades ago, when houses were a fraction of the price, they were more likely to own their home outright or have built up significant equity. That gave them sizeable sums to spend on their new smaller home or pass on to adult children hoping to buy.

Powell said those who were still active in the market – despite high prices and interest rates reducing buyer borrowing power – were highly likely to have existing equity or family help.

“Really, the first home buyers who have been active in the past 12 to 18 months are likely to have been supported.”

Downsizers and young buyers are often competing for similar homes Credit: Steven Siewert

The Demographics Group co-founder Simon Kuestenmacher said the trend of cashed-up downsizers was relatively new, thanks to runaway house prices in the new millennium.

“Traditionally speaking, downsizers would have been cash-strapped retirees. Now they’re people who bought on the cheap and have generated a lot of wealth,” he said. “Twenty years ago, people that were downsizing didn’t have that much money because their homes didn’t accrue that much wealth.”

High property prices were also working against downsizers, though, Kuestenmacher said, as it meant they faced a higher stamp duty bill. Greater capital gains on larger homes could also delay them from making a move.

“Downsizing doesn’t sound all that attractive once property prices keep rising and rising,” he said. “A property that went up $60,000, $80,000, $90,000 a year, why would you downsize? [They might think:] ‘If I wait another year, I get another $100,000’.”

Downsizer Bronwyn Roberts decided to leave behind her six-bedroom Turramurra house on a 1000-square-metre block after two of her children finished school. But she was not ready to move into a unit – a common struggle for those in her cohort.

Bronwyn Roberts with her daughter Grace and Grace’s boyfriend, Mitch at her North Turramurra home before she downsizes.Credit: Edwina Pickles

“It’s not actually easy finding something because I don’t necessarily want to live in an over-55s. I didn’t feel like it was the right stage of my life, and then I looked for apartments, and I didn’t feel like that suited me either,” said the 55-year-old owner of Face Studio by Bronnie.

After six months of searching, she landed on a smaller St Ives house on 400 square metres. The sale of her larger home gave her a healthy budget in a competitive market where there were few properties to choose from.

Her selling agent Ray White Upper North Shore’s Matt Bolin said there was a dearth of suitable homes for downsizers.

“What they ideally want is half the size of the house and half the size of the block. However, we don’t have anything like that in our area. The new planning laws will allow for that,” Bolin said.

He said cashed-up downsizers were edging out younger buyers who competed for similar homes but also, in turn, helped their own adult children with the leftover money.

SEA-Smythe’s James Smythe had observed a similar trend in the northern beaches, where cash downsizers were fuelling demand and, subsequently, prices at the higher end of the apartment market.

“They’re telling me that they’re quite happy to pay $2.5 million up to $4 million [for] a premium downsize,” Smythe said, adding that most were cash buyers as they had built up significant equity in their decades of homeownership.

He had seen several instances where downsizers bought a home for themselves, an investment property, or two units for their children and still had money leftover after selling their family home.