Residential Land Lease Communities Hit Pay Dirt

At last count, more than 22 million people in the US were living in manufactured home estates or residential land lease communities. 

Think about it—that’s at least 85 per cent of Australia’s population.

It’s a big number and while Australia has got a long way to go to match the estimated 7 million manufactured homes across the US, it has emerged as a fast-growing sector in recent years. 

“Obviously, our population mass isn’t the same but it’s still an ageing demographic,” financial advisory firm BDO business services director Angus Strachan said. 

“More and more baby boomers are coming towards retirement and people are seeing that as an opportunity.” 

To date, much of the sector’s focus has been targeted at the older demographic but, “it’s not just all about the over-50s or retirees”. 

“There are other people who live in these park homes.” 

Strachan will be a speaker at The Urban Developer Residential Land Lease Communities vSummit on April 14. 

He said the rise of the residential land lease communities sector—including manufactured homes estates and lifestyle communities as well as a segment of caravan parks—was being driven by a number of factors. 

“There are relative strong profit margins, particularly as real estate generally increases, in the initial upfront sale of these homes … and there’s security of income from the ongoing ground leases, Strachan said. 

“Really, it’s a land play. 

Tune in to The Urban Developer's coming Residential Land Lease vSummit Thursday, 14 April. Click here to secure your ticket.

“Effectively, the developer is selling the customer a factory-made home and that’s a way of funding these developments as well and they also retain ownership of the underlying land. 

“So, they get a bit of a windfall on the profit they make on the sale of the home to start with and then they’ve got the ground rent that they charge ... and they’ve typically got long-term leases locked in. 

“Also, they usually make some sort of commission out of the second and subsequent sales as well.” 

The surge in demand in the residential land lease sector also coincides with an emerging housing affordability crisis across the country and, significantly, it is one of the few sources of available affordable housing in many areas. 

“As freestanding homes in the suburbs of the capital cities get more expensive it is becoming an increasingly attractive housing option,” Strachan said. 

Major players in the sector include Ingenia Communities, Tasman Holiday Parks, Hampshire Property Group, GemLife, Serenitas, Lifestyle Communities, Palm Lake Resort and a growing number of heavy-hitting local and offshore investors. 

“It’s at a relatively mature stage in Australia now where there is a fair bit of industry consolidation going on,” he said. 

“We’ve seen the value of these businesses accelerate a lot during the past few years and currently what people are paying for them are record highs with some doubling in value.” 

Australia’s largest listed residential developer Stockland last year paid $620 million to acquire Queensland-based land lease developer Halcyon; and another property giant Mirvac also is making its move into the sector.

Hometown Australia, the local arm of US-based residential land lease communities giant Hometown America—the owner-operator of 60 MHE communities in the US—also has aggressively entered the market.  

“That’s a healthy sign for the sector, these organisations have got pretty strong balance sheets so they’re probably going to do a lot of investment,” Strachan said. 

“It’s gone well beyond the old incarnation of the onsite vans with those horrible annexes attached to them that started it all in the 1970s. It’s an evolution of the industry and it will take it to the next level.”