LIFE AFTER WORK:Continuing our Life after Work series, FIONA REDDANasks – should retirees put any of their lump sum into bricks and mortar?
THIS MONTH, thousands of public sector workers will leave their offices for the last time and enter retirement – many of them with sizeable lump sums. While property has been out of favour for some time now, problems in the banking sector, combined with uncertainty at euro zone level, means that for some, it is looking less risky. But should retirees look to property as a home for their money or is just too much of a gamble?
Financial adviser Simon Shirley has been speaking to a number of clients who are preparing for retirement from the public sector this month. He has found that some of them are considering property because of the fall in values, which means that canny investors can earn a yield of about 8 per cent.
“I think now is a good time,” he says. With average tax-free lump-sums of about €80,000-€150,000, depending on final salary in 2009, it means that some retirees would be in a position to buy a property outright in the current market – even in Dublin.
Indeed, in Dublin city centre agent Owen Reilly has a number of retired “ready-to-go buyers” seeking to downsize by purchasing smaller properties such as townhouses, apartments and penthouses.
“Some sold at the right time and others have the means to buy and sell their existing home later or perhaps pass it onto a child,” he notes.
However, Shirley cautions that opportunities for capital appreciation remain “limited” over the coming years. Moreover, those entering retirement need to ensure that they have enough money to cover any future shortfalls – and he wouldn’t recommend taking on any additional borrowings.
“You need to make sure that you’ve enough cash set aside. I always advise people to have a year’s worth of retirement income in cash. You wouldn’t want to have all your investments in illiquid assets,” he notes.
Another trend Reilly has observed is an increase from already retired parents looking to avail of the crash in values by buying first homes for their children.
Shirley says that if you have surplus cash or assets, then you could look at this, but it shouldn’t be done at the expense of your own financial security.
“You need to separate your desire to care for your family by buying them property and making sure you have provided for your own retirement,” he says.
For those retirees who already have investment properties, Shirley notes that some might be anxious to pay down some of the debt they owe on existing properties in order to be able to sell up and exit the investment.
However, in such cases he cautions that you shouldn’t put your entire lump sum against a mortgage. “Once you have handed over this money to the bank, it’s gone.”
But it’s not just buying a home that canny retirees have their eyes on. Keith Lowe, chief executive of Douglas Newman Good, has seen an increase in demand for small retail outlets from people coming out of jobs with lump sums.
“For people coming out with big lump sums, it’s very tempting,” he says, adding that while the main stumbling point to entering the retail business to date has been the very high rents, a new realism has entered the market, with tenants now able to secure new lettings for €10,000-€20,000 a year.
“We’re seeing a lot of it in the suburbs of Dublin, and it’s bringing life to the villages,” he says, pointing out that people are starting up everything from cafes, to cake shops, to printing outlets.
And if you don’t want the risk – and hassle – of potentially becoming a landlord, there are other investment options which will give you exposure to property.
James Mulhall, managing director of Murphy Mulhall, has found growing interest from smaller investors pooling together their funds to invest in commercial property.
“We’re seeing a growing number of individuals clubbing together to take up investments in the range of €500,0000-€1.5 million,” he says.
These cash buyers are looking for office or retail premises with strong tenants in situ, which previously in the boom would have attracted interest from investors with high levels of debt finance. Now smaller investors are taking advantage of low prices in forced sales.
“For certain individuals, sticking their money in high-yielding Government bonds doesn’t appeal. But buying the local bank branch at between
8-10 per cent yield on cash in some provincial locations and with an asset there backing it, is attractive,” he notes.
Mulhall expects more of these units to come on the market this year, as receivers and banks look to offload properties. And this might also spur activity in other sectors.
For Shirley, property funds are coming back into favour. Given that they have taken an “absolute hammering” in recent years, there could now be opportunity for growth.
One area that is unlikely to see much activity, however, is holiday homes. Despite having long been a port of call for retirees, even the plethora of those giving up full-time jobs is unlikely to make a dent in the oversupply of properties in this market.
In Brittas Bay, Co Wicklow, the bursting of the boom has left the seaside resort far removed from the heady days when mobile homes were sold for €250,000.
Now according to Eugene Dooley, of Dooley Poynton, three-bed homes are on the market for about €150,000 and caravans for €70,000-€80,000 – but even so, nothing is shifting. “I’d say two houses were sold in the last two years,” he notes.
But for retirees considering a relocation, “there are bargains to be got out there”, says Dooley. “I think next year will be a great time to buy a home in Brittas Bay,” he says, adding that there will “undoubtedly” be more repossessions over the coming year, which will push prices down even further.
The vista is a little brighter in warmer climes. While business slowed down for Niamh Erbek of Athena Advisors, following the collapse of the property bubble, she has noticed a “huge interest” in buying homes in France of late.
But this time around rather than looking to make a buck via a sale and leaseback investment, now her clients are retirees looking to partly relocate for lifestyle reasons.
“Those who invest in France now know it and they love it. They love the French lifestyle,” she says, adding that she is seeing interest from people looking to spend some of their retirement in regions such as the French Alps.
Downsizing or investing: three worth a look
For a retired couple looking to downsize to a more manageable property or perhaps to invest, 8 The Farmyard, Hybreasal, located between Kilmainham and Rialto on the South Circular Road, Dublin 8, is a two-bed townhouse asking €129,000 though Douglas Newman Good. In a gated development, it has communal gardens, designated parking space and an en-suite main bedroom. Service charge €400.
Number 8, Brittas Bay Village, in Co Wicklow, is a gated development that might suit someone looking to downsize or buy a holiday home with their lump sum. Sherry FitzGerald O'Gorman O'Reilly is asking €125,000. It has a living room, kitchen/dining room and a main bedroom en suite. There's a sheltered rear garden. There's also an on-site tennis court and a full-time caretaker. Service charge is less than €2,000.
Given its size – 41sqm (450sq ft) – 29 Saddlers Court in Rathmines, Dublin 6, is probably more suitable for a single person or as an investment. It has one double bedroom, a bathroom, an open-plan kitchen-cum-livingroom and two private courtyards. Youngs is asking €150,000.
It also comes with a designated parking space and has its own front door. Service charge is €670 per annum.
