AVARI Capital touts land leases beating inflation
AVARI Capital’s investment strategy focuses on an often overlooked segment of Australia’s housing market: land leases. The firm’s chief investment officer, Ben Coughlin, argues that this sector provides steady income that outpaces inflation—a quality increasingly difficult to find in today’s unstable markets.
This model operates by owning the land under residential homes while collecting rent from occupants. Unlike conventional property investments, it delivers high yields, between 7 and 8 percent of the purchase price, while reducing exposure to volatile housing cycles. For Coughlin, the appeal lies in its dual nature: it combines real estate characteristics with bond-like stability, delivering both defensive income and long-term capital growth.
Aging Population Fuels Lease Demand
Australia’s housing shortage and aging population create a strong structural advantage. The Australian Bureau of Statistics predicts the number of Australians aged 65 and older will nearly double by 2042, rising from 3.8 million to between 6.4 million and 6.7 million. Many retirees and downsizers prefer land lease communities, where affordability and lifestyle benefits outweigh the lack of outright home ownership.
The income generation mechanism sets land lease apart. Rents often adjust with inflation, creating a direct link to the consumer price index. This matters as Australia’s latest inflation data still shows persistent underlying price pressures, keeping rate hike expectations alive. Beyond inflation adjustments, AVARI can increase returns by adding homes to underused land, a move that improves both revenue and profit margins.
“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.”
Diversification Through Mid-Market Parks
The strategy also benefits from diversification. AVARI’s recent acquisition in Busselton, Western Australia, a park with over 100 homes, demonstrates how risk is spread. No single resident accounts for more than 1 percent of the park’s income, limiting exposure to individual defaults. The firm targets mid-market assets, valued under $20 million, avoiding the intense competition for large-scale developments that dominate institutional portfolios.
Land lease yields outperform other property sectors. Industrial properties typically offer 5 to 6 percent, build-to-rent delivers 4 to 5 percent, and retail or office properties range from 6 to 7 percent. Coughlin positions land lease as a hybrid: it provides the downside protection of real estate alongside growth potential that fixed-income assets cannot match. The sector’s resilience stems from housing’s essential nature, unlike tech-dependent assets, demand for shelter remains stable regardless of economic conditions.
Wholesale Investors Gain Direct Access
AVARI’s fund targets wholesale investors, giving them direct access to a market previously dominated by super funds, private equity firms, and large developers such as Mirvac and Stockland. The firm avoids capital-intensive brownfield projects, instead focusing on enhancing existing assets, a strategy that delivers comparable risk-adjusted returns at higher yields.
Coughlin said the response to the strategy has been positive, describing it as “straightforward to understand,” with strong potential as investors recognize its advantages. He also sees potential for the strategy to intersect with changes in how Australians access residential real estate through self-managed super funds (SMSFs). For now, though, the firm is focused on consolidating its leadership in the wholesale segment.
