Downsizing friction costs — stamp duty on the new property, agent commission, pre-sale presentation, capital works, conveyancing, and moving and dual-holding costs — typically consume 15-25% or more of the headline equity release, sometimes over 30% for same-suburb moves. A $500,000 headline gap can realistically net closer to $360,000. Modelling the realistic net before listing, not the headline gap, is essential to judging whether downsizing actually funds the retirement plan.
The downsizing conversation usually starts with a calculation. Current home expected to fetch $1,400,000. New unit or smaller home worth $900,000. The gap is $500,000 — a useful number, often projected directly onto the broader retirement plan. It funds a downsizer contribution to super, repays a residual mortgage, supports a couple of years of retirement income, or simply sits in cash for emergencies. The plan rests on the $500,000.
The trouble is that the realistic net of a downsize is rarely $500,000. Across most Australian states and most typical transactions, friction costs consume 15–25% or more of the headline equity release — sometimes substantially more. For a $1.4m sale and $900k purchase, the realistic net is more often $360,000–$400,000. The gap is not noise; it is the difference between a downsize that funds the next phase of retirement and one that disappoints.
The friction costs, in order of magnitude.
Stamp duty on the new property is almost always the largest single cost. The figures vary dramatically by state. On a $900,000 purchase: Sydney stamp duty is approximately $35,000–$36,000; Melbourne is closer to $48,000–$50,000; Brisbane is around $24,000 (Queensland has a more concessional regime for owner-occupied transfers); Adelaide is approximately $40,000; Perth is around $36,000. Some states offer specific senior or pensioner concessions, but eligibility is typically narrow and the maximum saving is modest.
For a downsizer in Melbourne moving from a family home to a smaller property, stamp duty alone can be $50,000 — 10% of the headline equity release.
Real estate agent commission and marketing on the sale. Commission typically runs 1.6–3.0% of the sale price, plus separate marketing fees of $5,000–$15,000 for a substantial campaign (photography, online portal listings, signage, possible auction fees). For a $1.4m sale at 2% commission and $8,000 marketing: $36,000.
Pre-sale presentation costs. Most homes prepared for sale receive cosmetic painting, minor repairs, sometimes home staging. Modest works run $5,000–$20,000; substantial pre-sale renovations can reach $50,000+. The works are theoretically recovered through a higher sale price, but the recovery is uncertain — and for older retirees in long-tenure homes, the works are often not optional but a condition of achieving the market-comparable price the calculation assumed.
Capital works on the new property. The most under-estimated category in most downsizes. A "smaller, easier" property typically still needs paint, carpets, perhaps kitchen and bathroom tweaks, window furnishings, sometimes air conditioning if not already present. Most downsizers spend $20,000–$50,000 in the first year on the new place. For seniors moving to a property that needs aging-in-place modifications — wider doorways, walk-in showers, bathroom rails, level thresholds — the figure can easily exceed $100,000. Older retirees making the move from a multi-storey home to a unit on a single level often find the unit doesn't quite suit and needs adjustments they hadn't budgeted for.
Conveyancing and legal fees. Both sides — sale and purchase — typically run $3,000–$7,000 combined. Settlement statements, title searches, contract review, dispute resolution if it arises.
Inspections, valuations, strata reports. Building and pest inspection on the purchase ($400–$800), strata report if buying into apartment or townhouse ($300–$500), property valuation if required ($500–$1,200). Total: $1,200–$2,500.
Removalist and packing. A 4-bedroom house's contents typically cost $2,000–$5,000 to move within a metro area; professional packing adds $1,000–$3,000; storage during transition (if needed) adds $500–$2,000. Total: $3,000–$10,000.
Dual-property holding costs. When sale and purchase don't settle on the same day — common — the seller carries two properties for a transitional period. Rates and insurance on both ($1,000–$2,500 per month combined), bridging mortgage interest if applicable ($1,000–$3,000 per month), utilities, security and cleaning on the empty property ($400–$1,000 per month). Three months of dual-holding adds $7,500–$20,000.
Capital gains tax. For most main-residence downsizers, this is zero — the main residence exemption covers the sale. But partial-use scenarios (where the home was rented or partly rented during ownership), properties on more than two hectares, and properties subdivided during ownership can trigger partial CGT. Investment properties or second homes are not main residence exempt at all.
The realistic net for a worked example. Sydney, $1.4m sale, $900k purchase:
- Headline equity release: $500,000
- Sale-side costs (commission and marketing): $36,000
- Pre-sale presentation (modest): $15,000
- Stamp duty on purchase: $36,000
- Conveyancing both sides: $5,000
- Inspections and reports: $2,000
- Removalist and packing: $5,000
- Capital works on new property (modest): $30,000
- Dual-holding costs (3 months): $10,000
- Total friction: $139,000
- Realistic net: $361,000
Or, in proportional terms, 72% of the headline figure. In other states with different stamp duty profiles, the percentage moves but the picture is similar. In high-touch capital works scenarios — common for elderly downsizers — the percentage can fall below 60%.
The downsizer contribution interaction. A specific point matters here: the downsizer contribution cap of $300,000 per spouse is calculated based on the gross sale proceeds, not the net after friction. So a downsizer can still make the full $300,000 contribution even where their realistic equity release after friction is less than $300,000 — provided they have the cash to fund the contribution. The cap is gross-based; the planning impact of the friction sits on the rest of the equity release.
The same-suburb trap. The friction analysis is most punishing for retirees considering same-suburb downsizing — selling a four-bedroom house and buying a two-bedroom unit in the same postcode. The new property is typically at similar prices to the area's market, so the headline equity release is modest. The friction is the same regardless of price — agent commission and stamp duty scale with price, but capital works and dual-holding costs are not price-sensitive. A same-suburb downsize that releases $300,000 gross may release $150,000 or less net — sometimes not worth the disruption. Moving to a cheaper suburb, regional area, or significantly smaller property typically improves the friction-to-benefit ratio.
The planning principle. Build the realistic friction estimate before the home is listed. Use 15–25% of headline equity release as the starting estimate; refine with state-specific stamp duty calculation, agent quotes, and capital works estimates for the new property. Compare the realistic net against the broader retirement plan: if the released capital is funding aged care, super contribution, or debt repayment, what is the impact of receiving 30% less than expected?
For some retirees, the answer is "still worth it" — the lifestyle benefit of the smaller property, the proximity to family or services, the reduction in ongoing maintenance, all justify the friction. For others, the answer is "let's reconsider" — and alternatives like aging in place with home modifications, a reverse mortgage, or the Home Equity Access Scheme may produce a cleaner financial outcome.
The decision should be made with eyes open. Headline arithmetic does not survive the actual transaction. Knowing the realistic net is the precondition for knowing whether downsizing makes sense.
Sources
- Downsizer super contributions (ATO)
- Eligibility for main residence exemption (ATO)
- Home on more than 2 hectares (ATO)
- Home Equity Access Scheme (Services Australia)
- Downsizing in retirement (Moneysmart)
Key takeaways
- Friction costs — stamp duty, agent commission, presentation, capital works, conveyancing, moving, and dual-holding costs — typically consume 15-25% or more of the headline equity release from downsizing.
- Stamp duty on the new property is almost always the single largest cost, varying dramatically by state — around $24,000 in Brisbane versus $48,000-$50,000 in Melbourne on a $900,000 purchase.
- Capital works on the new property are the most under-estimated cost — most downsizers spend $20,000-$50,000 in the first year, and aging-in-place modifications can push this past $100,000.
- The downsizer super contribution cap ($300,000 per spouse) is calculated on gross sale proceeds, not the net after friction — so the cap itself isn't affected even though the leftover cash for other purposes is reduced.
- Same-suburb downsizing is the most punishing scenario, since friction costs don't scale down with a modest price gap the way they do with a bigger move to a cheaper area.
Frequently asked questions
How much of my downsizing equity release will I actually keep?
Realistically, 70-85% of the headline gap once friction costs are accounted for, and sometimes less. On a $1.4 million sale and $900,000 purchase in Sydney, a $500,000 headline gap can realistically net around $360,000 after stamp duty, agent fees, presentation, capital works, and moving costs.
What's the biggest cost people forget to budget for when downsizing?
Capital works on the new property. A "smaller, easier" home typically still needs paint, carpets, and kitchen or bathroom updates — most downsizers spend $20,000-$50,000 in the first year, and if aging-in-place modifications are needed, that figure can exceed $100,000.
Does downsizing friction affect how much I can contribute to super under the downsizer scheme?
No. The downsizer contribution cap of $300,000 per spouse is calculated on the gross sale proceeds, not the net after friction costs, so you can still make the full contribution if you have the cash available — the friction affects what's left over for other purposes, not the cap itself.
Why is downsizing to the same suburb often a poor financial move?
Because friction costs like stamp duty and agent commission scale with price, but capital works and dual-holding costs don't — so on a modest same-suburb price gap, the fixed costs eat a much larger share. A $300,000 gross release might net $150,000 or less, which is sometimes not worth the disruption compared with moving somewhere cheaper.