Asset classes such as childcare and aged care are heavily reliant on subsidies and investment by the government. The budget announcement last week has committed greater investment into these sectors which will have an impact on the attractiveness of these assets to invest in.
For childcare, the announcement of a $4.7 billion investment into making childcare more affordable is likely to have a positive impact on occupancy levels. From July 2023, childcare subsidy rates will increase up to 90 per cent for eligible families earning up to $530,000, this will likely result in more families taking up childcare places and will pressure the already low vacancies. To cater for this expected increase in occupancy, the government has also committed to fee-free TAFE places and further university placements to fill the shortage of early childhood educators. The anticipated uplift in demand for childcare bodes well for existing establishments and their owners together with those extending or developing new centres. Many experienced operators are seeking out new opportunities to grow their operations into new suburbs and markets, despite high development costs, the uplift associated with increased returns being increasingly attractive.
Despite the growth in interest rates, we continue to see demand for childcare assets at low yields, their long term returns with fixed increases attractive to a range of buyers who can see the future earning potential of these assets and their long term land value. Those buyers who have invested into childcare assets with development upside are well placed to benefit from this increase in demand for places and likely uplift in income which comes from improvements in subsidies. Similarly, growing demand to lease these assets are expected to emerge setting new benchmarks for rents, improving the returns for childcare investors.
Aged-care also tipped to see the value of government investment, with over $810 million in support to aged-care providers which will aid in the upgrade and redevelopment of this asset class. A further $2.4 billion commitment to the education and increasing in care provided in nursing homes will further enhance the attractiveness to older Australians putting further pressure on an already high occupancy asset class. With limited investment opportunities for aged care assets in the market, we may see an increase in development in this space to cater for our ageing demographic.
These asset classes which attract high government subsidies continue to be in strong demand by investors despite the changing market fundamentals. While the cost to borrow has increased, the anticipated uplift in returns coupled with high occupancy, strong land values, particularly those with future development opportunities will keep investment demand up.
