(Nov 11): The Australian residential property market has suffered a multi-year downturn, but Thakral Corp is optimistic that its retirement resort venture, GemLife, is relatively immune from the upheavals in the wider property market and poised for steady growth ahead. “Demand exceeds supply at the moment,” says Kevin Barry, joint managing director of Thakral Capital Australia, in an interview.
A 50:50 joint venture was formed in 2015 with Australia’s Puljich family, which has been active in the local retirement home business for more than three decades, via the Living Gems brand. This is the first time the Puljich family has gone into a joint venture in the retirement home market and the GemLife branding is used.
So far, GemLife has six active sites in various stages of development. They are located in the three most populous Australian states of New South Wales, Victoria and Queensland. These six sites will have a total of 1,400 homes. Of this number, just under 500 have been sold and 250 are occupied. “We continue to generate good sales volume across this portfolio of assets,” says Barry.
The sixth and newest site, a 4.4ha parcel in Pacific Paradise, Queensland, was announced on Sept 30. GemLife plans to invest A$6 million ($5.6 million) to build 96 homes at the site. Construction started in October and the first homes will be ready for buyers to move into in early 2020.
The Thakrals and Puljichs have bigger plans for this market. In the pipeline are another eight to 10 sites, which can probably increase the number of homes to around 3,500. The central theme in this business is the rising number of older people in the years to come. “Demand for retirement housing in Australia continues to grow. The prime location of the resorts and the established GemLife brand make us well positioned to capture this growth,” says Barry. Besides the individual homes, each site features a wide range of common amenities, such as clubhouses and other recreational facilities, so that residents can lead an active lifestyle.
Barry explains that the retirement housing concept is an attractive one. While there are no age restrictions, the housing is targeted at the segment of population that is ready for “active retirement”. The assumption is that they have paid up for their original home, which they can sell for, say, A$800,000 or so. Then, they take just over half of it, or some A$450,000, to pay for a new GemLife home, which comes with new furnishings and is located in a community with similar demographics.
The purchasers can put the remaining cash into a superannuation or some other retirement savings plan, and enjoy a steady stream of retirement income over the years — in addition to living in a new house and a new community. “It is a form of equity release,” says Barry.
As for GemLife, the property is paid in full over a three-month period from the sale to the completion of the houses — and that is an upfront profit that it can book. The company continues to own the land on which the houses sit, though. In addition, residents pay a weekly fee of A$160 to A$180 for the upkeep of the resort. As they do not own the land, there are no land taxes or stamp duties to pay.
GemLife has a couple of ways to enjoy income from its projects. First, it makes an upfront profit on the sale of the homes. Second, there is the additional A$160-a-week fee it collects from each household. Such retirement resorts are made more attractive to buyers because of certain government policies. Under the Commonwealth Rental Assistance scheme, the Australian government will pay a form of rental subsidy at different rates to different groups of people, including retirees. According to Barry, that means residents of GemLife’s projects can be paying just A$80 a week.
Is this kind of subsidy sustainable? If the government decides to cut such funding, will it affect GemLife’s business? Barry explains that within the “aged care” sector, government spending on retirement resorts is relatively low compared with spending on providers of “high care” such as nursing homes. “We are less exposed to regulatory risk than other business models,” he says.
As the developments are relatively new, there is no active secondary market for the retirement homes. However, some of the early buyers at GemLife Bribie Island are enjoying capital appreciation of more than 15% over a period of 18 months to two years. “As you build out at each stage, the price goes up. People who came in early bought at a lower price and that’s where they have their capital appreciation,” Barry explains.
He gives as an example residents who were early buyers of the GemLife project at Bribie Island who sold their property, pocketed the profit and moved to another project by GemLife. “If you have happy residents, then they are more likely to refer their friends and family. Effective word of mouth is one of our largest drivers of sales,” he says.
The GemLife retirement homes aside, Thakral has invested in other residential projects in Australia. Over the past eight years, the company has invested more than A$400 million in projects with a value of about A$4 billion. Instead of undertaking the development of the projects alone, Thakral prefers to contribute in terms of funding — from its own capital or loans.
At the moment, Thakral has four residential projects in various stages of development and it will continue to work with its partners to ensure a steady pipeline of properties coming onstream. “We foresee demand for the business of providing capital in well-located residential projects,” says Barry.
To avoid concentration of risk in just one market, Thakral is active in different cities: Sydney, Melbourne and Brisbane. It diversifies in terms of the type of residential projects as well: high-end condominiums and townhouses, for example.
If Thakral’s GemLife homes and other real estate business in Australia are on track to growing as steadily as seen, does it make sense to spin off the Australian business into a separate entity? Inderbethal Singh Thakral, the company’s CEO, does not rule out the possibility, although he is non-committal. “We are not in a rush. We are a 115-year-old company. One step at a time,” he says.
