The rise of MHEs: a gold mine for Australia’s senior citizens

Australia’s Manufactured Housing Estate (MHE) sector is evolving rapidly, primarily targeting the 55+ demographic as an alternative to traditional retirement living. It offers a simpler structure compared to retirement villages, typically with lower or no deferred management fees. Residents own their homes while leasing the land, benefiting from stamp duty exemptions and potential rental assistance. Many senior residents may also qualify for rental assistance payments, and they generally retain the capital gain upon sale. The sector is gaining traction as an affordable, community-oriented option for senior Australians who value autonomy and independence while being part of a community of similar demographic. Despite being still relatively immature in comparison to other global markets, it is rapidly gaining attention from institutional capital sources. Multiple Joint Ventures (JVs) have been formed, the most recent being between Gaw Capital Partners and GreenFort Capital to acquire and develop an AUD 800 million pipeline. This follows Stockland (50.1%) and Invesco Real Estate (49.9%) who will jointly develop and hold an initial portfolio of three land lease community assets.

We expect to see further capital partnership announcements as a key investment theme for the sector, which is expected to evolve in the short to medium term, driven by increased consolidation activities. Major operators and early entrants are expected to strategically acquire smaller players in a bid to expand their portfolios and rapidly gain scale in the sector.

 The sector has experienced a significant increase in institutional capital interest, driven by its stable income potential and market resilience. These communities offer a unique investment opportunity for diversifying portfolios and generating reliable cash flows. With the growing demand for affordable housing options and the country's ageing population, investor interest in this market has intensified. Institutional players recognise the long-term growth prospects associated with land lease communities, especially those designed for retirees seeking vibrant social lifestyles. As a result, substantial investments have been made, indicating potential for further expansion and development in the future.

The rapid rise in the Australian ten-year government bond rate over the past 24 months has put upward pressure on discount rates and capitalisation rates. However, the MHE sector has proven resilient despite macroeconomic headwinds. Across the listed REITs, capitalisation rates have only softened on average by 18 bps from FY22 to FY24, significantly less than the core property sectors. JLL believes the current devaluation cycle is likely reaching its trough with MHE capitalisation rates sitting notably sharper than other sectors.

As Australia's population ages and the demand for affordable housing grows, the MHE sector is poised for continued expansion and development, and this growth is attracting further institutional investment.

Figure 1: Capitalisation rates

Source: Company Reports, JLL Research