Hear me out – here’s the thinking.
Unless you’ve been living under a rock, you’ve probably seen the headlines: US President Donald Trump’s sweeping new tariffs on imports have rattled global financial markets – Australia included.
While the US only accounts for about 5% of our exports, the real concern is the ripple effect. Tariffs targeting Australia’s major trading partners, like China and Japan, could put a serious dent in our economic growth.
But what does all this mean for aged care – especially when it comes to building new beds?
Here’s where it gets interesting.
The market chaos has fuelled speculation that interest rate cuts are back on the table. Some financial outlets are now reporting a 100% chance of a rate cut in May, with the possibility of up to four this year which could drag the cash rate down below 3%.
That could be a game-changer for aged care operators currently sitting on the fence about new developments.
Let’s look at the numbers.
We published this example in SATURDAY last May:
In 2022, the cost to build an aged care bed in metro or regional Australia was around $270,000.
By 2024, that jumped to $450,000+ in regional areas and $600,000+ in metro areas.
Over the same period, interest rates rose from 3% to 7%.
This meant operators needed $190,000 in equity per bed at the $450,000 price point, or a whopping $340,000 per bed at the $600,000 mark – compared to just $53,000 back in 2022.
If Trump’s tariffs lead to rate cuts here, the economics of new builds could suddenly start to make sense again.
As we’ve been reporting, the country is staring down a serious aged care bed shortfall within the next 36 months. While construction costs are still high post-COVID, operators could start to see real upside from 1 July , thanks to increased consumer contributions and better RAD retention.
And with the full impact of the Aged Care Taskforce’s funding reforms expected to hit from FY29 – around the time it takes to get new developments off the ground – now might just be the time to start planning.
Food for thought.
