We often consider property and shares to be the best-performing investments. But what if an investment integrated the two, bolstered by a strong sector, rising long-term demand, and strong government support?
Here are seven reasons why childcare business investments are proving to be stable and strong over the long run, and why you should consider them as well.
#1: More double-income households than ever before
The need for childcare business is increasing in response to current family patterns and population increase in Australia.
The Australian Bureau of Statistics predicts a 9.9% growth in the number of children under the age of three by 2024, making it the fastest-growing segment of the population.
In addition, a societal revolution in Australia has resulted in more women returning to work than ever before. The rising number of double-income households has increased demand for early childcare and after-school care, with over 1.3 million children receiving childcare rebate to attend daycare facilities in 2022.
#2: Substantial government subsidies
The federal government prioritises accessible childcare as a way to strengthen the national economy by enabling more individuals to enter the workforce. They provide a variety of incentives to assist more families using childcare services.
The Child Care Subsidy (CCS) is a financial assistance incentive granted to qualifying families who send their children to daycare and after-school care. It covers up to 85% of the costs, based on the family income.
The federal government has proposed a new CCS reform for 2022 that raises the support for siblings in care while removing the income restriction. These subsidies enable more low- and middle-income families to obtain affordable childcare.
#3: A noticeable increase in the number of children enrolled in childcare.
Enrolment numbers continue to rise as more families pursue two incomes and daycare becomes more affordable thanks to government incentives.
Although the Covid-19 lockdowns had an influence on enrolment levels in 2020, the data are already rebounding back, with 44% of Australian children aged 0 to 5 registered in childcare programmes. According to the ABS, 81% of 4-year-olds attend pre-school, despite distorted data due to the pandemic.
According to the Australian Industry and Skills Committee Report, in response to the increased demand for excellent childcare, early childhood educator employment is predicted to “experience the largest relative growth in the sector, growing by 22% or reaching 9,000 jobs by 2023”.
Management positions are expected to expand by 20%, while childcare sector positions as a whole will grow by 27,000 jobs to accommodate the additional centres required to satisfy demand.
#4: Large land parcels in excellent positions
Childcare institutions occupy large sites, which is a developing asset. As a centre owner, you have the option of purchasing the land and property (a freehold investment), the child care company itself, or both.
Owning the property offers your asset more strength and enables for lucrative rezoning from commercial to residential later on, since most centres are located in neighbourhood areas.
As urban development continues, additional childcare facilities will be required to serve families looking for cheap housing in planned areas.
#5: Long-term, secure leases with invested tenants
As a freehold owner, you may rent out the daycare property as a landlord. Lease durations are normally 10 years or more, with options, since repeated relocations are costly and may have a negative impact on enrolment.
Long, steady lease periods benefit both tenants and landlords. Tenants may securely establish a long-term, sustainable company, and landlords see fewer changes of hands, resulting in maximum rental revenue with no vacant period.
Properties are also impeccably kept. To comply with severe industry norms on quality of care, renters in your home must maintain high levels of cleanliness and maintenance.
Not to mention that the primary customer, the parents, place a higher value on quality, cleanliness, and education, which fosters competition and might influence a parent’s choice of centre. As a consequence, the property is beautifully conserved and maintained.
#6: More lucrative and quicker than many other types of investments.
In terms of assets, child care facilities have traditionally been among the most lucrative, having several advantages over other investment alternatives. For example:
As a freehold property owner, you’ll possess a significant block in a prime location, which is a profitable land investment.
Due to childcare standards, your buildings and land are kept properly maintained by the childcare operator, which implies greater profit down the road when selling the childcare business.
The sustainable nature of the childcare business, along with extended lease periods, provides for consistent yearly rental increases, without the swings that you would otherwise face with a commercial property to compensate for vacancies, various tenants, and market changes.
Rental revenue is solid, since leases are often longer than a decade, with tenants that spend considerably in their premises.
The appeal of daycare property investments stems from the fact that a long-term, stable childcare tenant gives the owner compounded yearly rental increases throughout the course of the lease.
Childcare property returns are often higher, and properties are seldom unoccupied, in contrast to other types of commercial property assets, which may have protracted vacancies and rent changes over the same lease time.
Rental rates are outstanding when compared to investment properties, with the average national yield continuously lying between 5-6% in urban regions.
Market volatility is far lower than other assets like stocks or cryptocurrencies.
Massive depreciation advantages throughout the life of the building, including blanket recovery of landlord expenditures, which may range into the millions for bigger centres.
#7: Not influenced by technology or off-shore economies.
Child care is a hands-on requirement for families that cannot be substituted by technology or outsourced to offshore firms. It’s a brick-and-mortar company with high standards in an industry that must expand to suit the requirements of a changing population.
To learn more about investing in childcare businesses in Australia, talk to the childcare business agents at MERC business agents.
