Australians are known for their sunny side-up, happy-go-lucky, she’ll be right mate attitude towards life.
This is particularly the case, it seems, when it comes to property and the ability of housing to fund our lifestyle in retirement.
The famous “she’ll be right nature” and the lack of a property crash in the major cities have combined to make Australians the most optimistic race in the world when it comes to predicting that downsizing or selling property will fund their retirement.
Some 26 per cent of Australian workers believe that property will help to fund their lifestyles after they leave the workforce, a survey by global banking heavyweight HSBC found.
Internationally, an average of just 12 per cent of savers are as optimistic about their property investments.
The real danger, though, is that just 8 per cent of Australian retirees actually cite property as a source of funding in retirement.
“Property can work well, but if it is a weak property market at the point of retirement, it can have a detrimental impact on lifestyle in retirement,” says Scott Ellis, head of wealth at HSBC.
Financial advisers blame the property expectations gap on several factors, including high moving costs, the high prices of highly sought-after units or smaller houses in popular areas and the tendency to delay downsizing for too long.
“People think that if you are selling the family home, the gap in prices is bigger than it is,” warns Suzanne Haddan of advice firm BFG Financial Services.
She says that if someone wants to stay in the same area but move to a smaller villa on one level, the entry cost can be high. When faced with the reality of moving to a vastly smaller property, many retirees decide not to compromise as much as they assumed they would.
Then there are the costs associated with moving, including transaction costs, the desire to renovate the new home and buy new furniture. Haddan says savers can easily forget how much it can cost to get a place “up to scratch”.
Nerida Cole of Dixon Advisory warns that for many retirees, renovating a home is one of their major costs on leaving the workforce.
Cole warns that many individuals delay downsizing the family home for too long. If they then fail to maintain the home to contemporary standards, the fetching price may well be a lot less when it is eventually sold.
The solution, says Cole, is to start keeping an eye on the property market for at least five years before vendors want to sell.
That will give retirees and pre-retirees the time to find a place that meets their criteria and help them to avoid overpaying for the new home, while hopefully ensuring that they don’t delay the move for too long.
“Downsizing when you are in a rush and have got lots of energy is better,” Cole says.
The HSBC survey found that working Australians expect to save for 11 years longer for their retirement than retirees actually did save.
This story was first published in the AFR.