Door remains open for ‘downsizers’

For those in the group it is a program that should be actively considered. Picture: Nick Clayton

As property price falls remain very limited in the major capitals it may be a timely opportunity for retirees to bring forward their sea-change plans, selling up the metropolitan family home and downsizing into something smaller but more centrally located, otherwise relocating regionally.

The “downsizer” scheme can be used by a limited group, but for those in the group it is a program that should be actively considered.

For those over the age of 65, the downsizer contribution rules that came into place from 2018 might come in handy as they allow you to transfer up to $300,000 per spouse into superannuation. The significance of these rules are that downsizers are able to disregard the usual contribution caps and work tests that would usually apply.

Kitty Parker, principal with Sydney boutique buyers’ agency Kitty & Miles says: “While there has been a minor softening of property prices nationally, overall the property market has remained stable. Melbourne has experienced the sharpest decline, but it is still relatively reasonable considering the circumstances. Sydney continues to experience low stock levels and prices are holding.”

Research agency Core Logic reports that between March and July price falls are modest. The worst is Melbourne’s 3.5 per cent, Sydney was down 1.7 per cent while Darwin - the best performer - was unchanged.

Given the horse has not bolted (yet), there is still the opportunity to sell up the family home, downsize and push some money into superannuation. At present, property prices are not too far off the 2018 peak so downsizers are not having to take a big hit.

The downsizer contribution rules are available if you have owned a property for 10 years or more.

You do not have to be living in the property that you wished to claim the downsizer contribution against at the time of sale, however, a requirement is that the property in question was your principal place of residence for at least some stage in the past while you owned it.

The rules are relatively flexible in that the property can be owned in one spouse’s name and yet both spouses are eligible for the $300,000 downsizer super contribution.

The contribution to super will need to be made within 90 days of receiving the proceeds of sale from the property and a downsizer contribution form must be submitted to your superannuation fund at the time or before you make the contribution.

Although the money contributed is exempt from the usual after tax super contribution caps, once in the super system, the downsizer contribution counts towards the $1.6m transfer balance cap. In other words, adding the extra $300,000 still won’t allow you to have more than $1.6m per person in a tax free account based pension.

Australians on average live in a property for 11.3 years before moving, however, it is relatively common for people in their 60s and 70s to have been in the same property for 30 years or more.

Over the years when advising clients on downsizing, I have witnessed people selling their homes in Sydney and Melbourne, buying in a coastal town but then regretting the move as they start to realise the things they miss from capital city living and took for granted. Whether it be family or the local artisan bakery or the access to a large hospital and medical facilities, it can be difficult.

A simple way to reduce the risk of this occurring is to rent in the regional area that you are considering relocating to permanently before buying.

For others who are downsizing from more substantial properties, there may be the ability to purchase both a house regionally and an apartment in the home capital city to have the best of both worlds, but again renting to test the waters is the best approach.

Keep in mind that competition in the property market is strong for “retiree friendly” properties as you are probably not the only one looking to downsize.

Parker says: “Sale prices have remained solid, and in many cases have been rising for garden apartments and low maintenance townhomes in central locations in capital cities with retiree appeal. Regionally, thanks to low stock levels, vendors are still able to command strong prices in a COVID climate, especially for properties with flat blocks and minimal stairs.”

The whole exercise of changing property can be confronting as the routine and comfort of being in the same property and similar surroundings changes.

For those thinking about relocating from a capital city to a regional town, make sure you are certain the location is right before purchasing.

If you end up relocating but then move back to where you started, the main beneficiary of the exercise will be the real estate agent and the state revenue department who have their hand out for stamp duty every time you buy.

James Gerrard is principal and director of Sydney financial planning firm www.financialadvisor.com.au