Guide to Downsizing a House in Australia

Downsizing sounds simple enough: sell the family home, buy something smaller and free up some money for retirement.

However, the financial outcome is not always as attractive as people expect. Stamp duty, selling expenses, moving costs and body corporate fees can consume a meaningful portion of the equity released.

There is also an emotional side to consider, particularly if you are leaving a home filled with family memories or moving away from a familiar neighbourhood and support network.

That is why downsizing should be viewed as a lifestyle and financial decision rather than simply a property transaction.

With careful planning, the right move can reduce your expenses, release equity and give you a home that suits the next stage of your life.

This guide explains the benefits, potential drawbacks and practical steps involved in downsizing a home in Australia.

Why Australians choose to downsize

Australians downsize for several reasons, and the right motivation depends on their financial position, lifestyle, and future plans.

1. Preparing for retirement

Downsizing, or "rightsizing" as it is sometimes called, can unlock equity tied up in a larger home. You can use that money to strengthen retirement savings, reduce debt, invest, or fund travel and other lifestyle goals.

Moving to a smaller and potentially less expensive home may also reduce ongoing expenses, allowing retirement savings to stretch further.

2. Reducing housing costs

A smaller or more efficient home may bring lower mortgage repayments, insurance premiums, energy bills and maintenance expenses.

However, don't assume lower costs. A well-located apartment or townhouse may be expensive to purchase, and strata or body corporate fees can offset some of the savings.

3. Paying down debt

Selling a larger home and buying a less expensive one may allow homeowners to repay a mortgage, credit cards or personal loans.

The benefit comes from both the lump sum released and the possibility of lower ongoing housing expenses, but you need to calculate the numbers after transaction costs.

4. Responding to changing lifestyle needs

Housing needs change as children leave home, careers wind down, health changes or mobility becomes more limited.

A smaller home with single-level living, lift access and easier maintenance may be more comfortable and practical for the years ahead.

5. Moving closer to the people and places that matter

Downsizing can provide an opportunity to move closer to family, friends, transport, shops or medical services.

Some people also use the move to exchange a large suburban home for a more convenient inner-city, bayside or village lifestyle.

Location often matters more as we age, so the surrounding neighbourhood deserves as much attention as the property itself.

6. Simplifying life

A smaller home encourages people to decide which possessions they genuinely use and value. While decluttering can be emotional, many downsizers enjoy having less to maintain and more time for family, travel and leisure.

The benefits of downsizing

Releasing equity

By buying a smaller, less expensive property, you may have equity left over after allowing for selling, purchasing and moving costs.

Depending on your circumstances, that money could help repay debt, strengthen your cash reserves, contribute to super or provide additional retirement income.

Reducing ongoing expenses

A smaller home may reduce mortgage repayments, insurance, energy bills and maintenance expenses.

Apartment and townhouse owners should still allow for strata or body corporate fees, including the possibility of special levies.

Freeing up time

Less space and a smaller garden generally mean less cleaning and maintenance.

Time that was once spent mowing lawns, repairing fences or caring for unused rooms can be spent elsewhere.

Improving accessibility

A thoughtfully selected home may be easier to navigate and safer to live in.

Features such as single-level living, wider doorways, walk-in showers, lift access and secure parking can become increasingly valuable over time.

Creating a more flexible lifestyle

Many downsizers are attracted to a secure "lock and leave" apartment, townhouse or villa that makes travelling easier.

Living closer to shops, restaurants and public transport can also reduce dependence on a car.

The potential drawbacks

Leaving can be emotional

A long-held family home contains memories as well as belongings. Leaving the neighbourhood, neighbours and routines built over many years can be harder than expected.

Give yourself time to adjust and involve family members where appropriate, while remembering that the final decision should reflect your needs.

Smaller may not mean cheaper

A smaller property in a desirable location may cost as much as the home you sell. Stamp duty, agent commissions, conveyancing, removalists and renovation costs can further reduce the amount of equity released.

An apartment may also carry substantial owners corporation costs, particularly if the building has lifts, pools, gyms or major maintenance requirements.

There is less space and storage

Moving from a four-bedroom house to a two-bedroom apartment requires a genuine adjustment.

Your furniture may not fit, storage will be limited and accommodating overnight guests may become more difficult.

Paid storage can solve a short-term problem, although ongoing storage fees can undermine the financial benefit of downsizing if possessions remain there indefinitely.

Privacy and noise may be different

People accustomed to a detached house may find apartment or townhouse living less private. Shared walls, common areas, visitor parking and owners corporation rules can take some adjustment.

Visit any prospective building at different times of the day and speak with residents before buying.

Selling and buying create timing risks

Selling first may leave you needing temporary accommodation if the right replacement home is unavailable.

Buying first can create pressure to sell quickly and may require bridging finance.

The best sequence depends on your finances, the depth of the local market and how particular you are about your next property.

Your Age Pension may be affected

The family home is generally exempt from the Age Pension assets test while you live in it.

Money released after downsizing may be assessed differently, which could reduce your entitlement.

How downsizing may affect your Age Pension

The portion of the sale proceeds that you intend to use to buy, build, rebuild, repair or renovate another principal home may be exempt from the assets test for up to 24 months.

In some circumstances, the exemption can be extended to 36 months.

For home sales completed from 1 January 2023, eligible proceeds held as financial assets are generally deemed at the lower deeming rate during the exemption period.

Any remaining money not used for your next home may be assessed under the normal assets test and deeming rules.

This does not necessarily mean downsizing will leave you worse off. Some retirees may accept a lower pension because they have released considerably more money to support their lifestyle, but they should calculate the outcome before the home is sold.

Could you contribute some proceeds to super?

Australians aged 55 or over may be able to make a downsizer contribution of up to $300,000 into super from the proceeds of selling an eligible home.

For a couple, that could mean contributing as much as $600,000.

You generally must make the contribution within 90 days of receiving the sale proceeds, and eligibility conditions apply. These include rules about how long you owned the home and whether the sale qualifies for the main residence capital gains tax exemption, at least in part.

A downsizer contribution does not count towards the usual non-concessional contribution cap. It does, however, count towards your total super balance and can affect how much you can move into a tax-free retirement phase income stream.

The strategy can be valuable, but it should be considered as part of a broader retirement and estate plan, not in isolation.

What does downsizing really cost

Before assuming how much equity you will release, allow for the real estate agent's commission, advertising, conveyancing, repairs, styling, removalists, stamp duty on the next property and any immediate renovation or furnishing expenses.

If you buy into a strata complex, review the regular levies, sinking fund, insurance arrangements, recent meeting minutes and any planned special levies.

A low quarterly fee may indicate deferred maintenance rather than a building that is inexpensive to operate.

If you buy before selling, include the cost of bridging finance and the risk of carrying two properties for longer than expected.

The useful number is the net amount remaining after every cost has been paid, rather than the apparent difference between the two sale prices.

Choosing the right type of home

An apartment or unit

A well-located apartment can provide security, convenience and minimal maintenance. It may put shops, transport, health services and entertainment within easy reach.

Pay close attention to the building's management, construction quality, noise, lift reliability, parking and owners corporation finances. Large complexes with extensive facilities can carry high ongoing costs.

A townhouse or villa

Townhouses and villas can provide more space and privacy than an apartment while requiring less maintenance than a detached house. They may also offer a courtyard, private entry and room for guests.

Check whether the property is strata titled and understand the rules, levies and maintenance responsibilities before buying.

A smaller detached home

Downsizing does not have to mean apartment living. A smaller house on a compact block may provide familiar independence while reducing cleaning, gardening and maintenance.

These properties are often tightly held in established suburbs, so buyers may need patience and a realistic budget.

A retirement village

A retirement village may appeal to people seeking a secure environment, social connection and shared facilities. Some communities also provide access to support services as residents' needs change.

Retirement village contracts can involve entry costs, ongoing service charges, refurbishment obligations and substantial exit or deferred management fees. The ownership structure and resale arrangements may be very different from those applying to an ordinary residential property.

Obtain independent legal advice from someone experienced in retirement village contracts before signing anything.

Do you really need to move?

For some people, adapting the existing family home may produce a better outcome than selling.

Possible alternatives include renovating to create single-level living, installing accessibility features, renting out part of the home, creating dual occupancy where planning rules allow, or using an appropriate home equity release product.

A reverse mortgage may provide access to capital without moving, although interest compounds and reduces the equity remaining in the home. Renting out rooms or developing part of the property can also create tax, insurance, planning and Age Pension consequences.

Each alternative has financial and legal implications, but they are worth considering before assuming that moving is the only solution.

Ten tips for a successful downsizing move

1. Be clear about what you want to achieve

Decide whether your priority is releasing equity, reducing maintenance, improving accessibility, moving closer to family or creating a different lifestyle.

Clear priorities make it easier to assess properties and see where you are willing to compromise.

2. Build a detailed financial plan

Estimate your likely selling price conservatively and deduct every transaction cost. Then calculate the purchase price you can afford while retaining the cash buffer or retirement funds you want.

Consider whether changes to your superannuation, tax position, estate plan or Age Pension entitlement require specialist advice.

3. Think five or ten years ahead

Choose a property that will suit the life you expect to lead in five or ten years, rather than merely the life you lead today.

Consider stairs, lift access, parking, security, public transport, medical services and proximity to family and friends. Moving twice because the first downsized home no longer works can be financially and emotionally costly.

4. Research the area and building carefully

Spend time in the neighbourhood at different hours and visit local shops, transport and services.

If you are considering an apartment, inspect the common areas and review the owners corporation records with your solicitor or conveyancer.

Renting in an unfamiliar area temporarily can reveal issues that are difficult to identify during a brief open-for-inspection.

5. Start decluttering early

Sorting through decades of possessions takes longer than most people expect, especially when sentimental items are involved.

Work through one room at a time and divide belongings into items to keep, give to family, sell, donate or discard.

Measure the furniture you want to retain and compare it with the floor plan of your proposed home.

6. Prepare your home for sale

Attend to small repairs, improve presentation and ask experienced local agents which work is likely to add value.

Avoid expensive renovations unless there is a clear prospect of recovering the cost.

Compare agents on their strategy, local results and communication as well as their quoted fee.

7. Decide whether to buy or sell first

There is no universal answer. Selling first provides certainty about your budget, while buying first may prevent you from settling for a replacement home that does not suit you.

Discuss settlement periods, deposit requirements, bridging finance and temporary accommodation before committing to either sequence.

8. Get independent professional advice

A financial adviser can model the retirement and Age Pension consequences, while a solicitor or conveyancer can review purchase and retirement village contracts.

An experienced buyer's agent can help identify suitable properties, assess value and negotiate the purchase without the emotional pressure that often accompanies a major move.

9. Stay flexible without abandoning your priorities

Your preferences may change once you begin inspecting properties.

You might discover that a townhouse suits you better than an apartment, or that remaining close to your existing community matters more than releasing the maximum amount of equity.

Flexibility is useful, provided the final property still meets your important financial and lifestyle requirements.

10. Give yourself time

A rushed sale or purchase can turn a sensible downsizing plan into an expensive mistake.

Begin exploring your options before health, finance or family circumstances force an urgent decision.

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The bottom line

Downsizing can provide a simpler home, lower expenses and more money to support the next stage of life. It can also introduce unexpected costs, reduce Age Pension entitlements and require significant lifestyle compromises.

The best outcome comes from deciding what you want your future life to look like, calculating the financial consequences carefully and then choosing a property that supports that plan.

At Metropole, our independent property strategists and buyer's agents help home buyers understand their options, identify suitable properties and make better-informed purchasing decisions.

Getting the strategy right before you sell can reduce the risk of discovering that your new home does not deliver the lifestyle or financial outcome you expected.