Land Lease Communities: a path to affordability
Many policy makers and politicians who visited Land Lease Communities (LLCs) experienced a “light bulb” moment on the emerging sector’s potential to address housing affordability in Australia, according to Adam di Marco.
“There’s quite an education and a steep curve which is still to happen around LLCs,” said di Marco, who is the founder and chief executive of The Urban Developer, a community of property professionals.
He said he had taken policy makers on tours of LLCs to explain the model and seen first-hand how the message on affordability was “a quiet voice which was slowly getting louder and louder.”
The land lease model gives homeowners the opportunity to free up capital with no hidden costs, stamp duty or deferred management fees, and homeowners retain all capital gains.
As many of the LLCs were communities for the over 50s demographic, most buyers were downsizers vacating long held family homes, with the selling of these homes adding to overall housing supply.
The Urban Developer held a Land Lease Communities Summit in September, where industry leaders discussed the potential of the $12 billion growth sector.
Adam di Marco made the point that while LLCs were well understood in offshore markets such as the US, they were relatively new in Australia.
An upside of this was that there is significant interest in the Australian LLC sector from global institutional investors who were keen to partner with local developers and operators.
Not only was there an emerging understanding of how LLCs could improve housing affordability, but they were also the “next cab off the rank” for institutional investors.
Nick McGrath, Executive General Manager Funds Management at Stockland, told the event how Stockland was partnering with Japan’s Mitsubishi Estate Asia and US-based Invesco Real Estate to scale its platform for new developments and meet the increasing demand of customers.
"It makes sense for us to bring in capital partners to enable us to unlock and scale the development pipeline we have generated,” said McGrath.
Some of these developments had been completed and were “transitioning from a pure development play into communities with stabilised, annuity-like income.”
“One of the interesting things from an institutional perspective is that investors can participate at different points in the development, depending on their risk and return appetite,” said McGrath.
For example, investors focused on development returns will generally come in at the commencement of construction of a community and the first release of homes sold.
For others, the longer-term annuity-like cash flows following completion of development of a community are more attractive.
“Our job is to match the investment opportunity with the risk and return appetite of our capital partners,” said McGrath.
Further information
To listen to the on demand recording of the Land Lease Communities Summit event please click here.