Investors funding retirement with property appreciation in for a shock

Investors planning to fund retirement based on property appreciation may be in for a shock, according to the Arc Centre of Excellence in Population Ageing Research (CEPAR).

The Australian Bureau of Statistics (ABS) released March figures that show housing prices have fallen for the fifth consecutive month, dropping a further 1.1. per cent. 

The average price of established houses in capital cities has fallen by 4.5 per cent compared to the previous year, according to the report.

Chief investigator with CEPAR Professor Michael Sherris said he believes people relying on property to help fund retirement have a misguided notion that property will continue to appreciate and do not factor market volatility into their decision-making.

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Sherris said it was a "double whammy" for people who lost superannuation during the GFC.

His study analysing the volatility of housing prices across Sydney, co-authored with Dr Katja Hanewald, found that despite growth, volatility was higher than many people imagined and the rate of growth varied between postcodes.

"The fall in house prices in the last year is well within the uncertainty in house price growth rates that the CEPAR models would suggest based on historical Sydney house price data," Hanewald said.

They said house price volatility could carry significant risk, especially for reverse mortgage and similar loan arrangements where the loan accumulates and is repaid from the proceeds of selling the property. 

Declining house prices could also affect retired individuals who may be less able to manage their financial affairs, according to CEPAR, which is conducting further research into the role of housing in fulfilling retirement needs.

CEPAR said the Productivity Commission's recent report on aged care supported the importance of residential property to retirees wishing to fund health care and other future needs.