AVARI Bets on Land Lease Amid Demographic Shift
When AVARI Capital took stock of the best risk-reward opportunities in markets last year, land lease sector stood out as one of the strongest, according to Chief Investment Officer Ben Coughlin. The strategy leverages Australia’s demographic shift toward an older population while offering income growth tied to inflation, Coughlin explained in an interview with Investor Daily. Land lease involves owning land beneath residents’ manufactured homes, generating steady rental income from tenants who seek affordable, community-oriented living. This model, Coughlin noted, provides a unique blend of stability and growth potential, positioning it as a defensive yet expanding asset class.
Land Lease’s Appeal Amid Demographic Shifts
Land lease residents typically include downsizers, empty nesters, and retirees, aligning with Australia’s aging population. The Australian Bureau of Statistics projects the 65-and-older population will nearly double by 2042, reaching 6.4 million to 6.7 million. This structural demand supports long-term growth in land lease communities. AVARI’s Busselton, Western Australia, acquisition exemplifies this trend, with over 100 homes contributing less than 1% of park income each, ensuring diversification. The firm emphasizes that adding new homes increases both revenue and operational efficiency, as maintenance costs per home decrease with scale.
Rental agreements in land lease communities can be indexed to inflation, creating a direct link to the Consumer Price Index. This feature becomes particularly relevant amid Australia’s persistent inflation concerns, which have kept interest rate hike expectations alive. Coughlin highlighted that investors can also benefit from rising market rents and underutilized land, further boosting income. “There’s actually more than one-to-one: one home might increase the top line by 1 per cent, while the bottom line will increase by 2 per cent because of the margin and the operating leverage within the park,” he said.
Yield Comparison and Portfolio Strategy
AVARI positions land lease as a hybrid between property and bonds, offering a 7% to 8% initial yield on purchase price. This outperforms industrial (5%-6%), build-to-rent (4%-5%), and retail/office (6%-7%) sectors. The lower-risk profile stems from real estate’s essential nature and inflation-linked rents, providing downside protection while preserving capital value. Unlike larger institutional players targeting mega-parks, AVARI focuses on mid-market assets, such as Busselton’s $20 million acquisition, which delivers comparable risk-adjusted returns with higher yields. Coughlin argues that smaller-scale investments avoid intense competition for large deals, enabling access to undervalued opportunities.
The firm’s strategy also intersects with the growing use of self-managed super funds (SMSFs) for residential real estate, though AVARI’s current focus remains on consolidating its wholesale segment leadership. “We’re pretty passionate about the opportunity, and we think it is a great place for people to deploy their capital,” Coughlin said. “We’re excited to be leading the charge on that in the wholesale space.”
Operational Efficiency and Income Growth
Land lease communities benefit from economies of scale, as maintenance costs per home decrease with more residents. AVARI’s Busselton property exemplifies this, where each home contributes less than 1% of total park income. Adding new homes increases revenue while spreading fixed expenses across more units. “But each time you put a new home on a park, there’s [less common areas to maintain], so the actual income impact is to the bottom line,” Coughlin said. “There’s actually more than one-to-one: one home might increase the top line by 1 per cent, while the bottom line will increase by 2 per cent because of the margin and the operating leverage within the park.”
