April 23 2014
Best or worst investment?
When the family home no longer suits your needs and the time is right to consider your future requirements, many New Zealanders choose to move to a retirement village. Before making that decision do look at other options, such as remaining at home (if that’s suitable) with support delivered to you there, or living with your family, either in their homes or in a ‘granny flat’. Here, we will look at the retirement village option.
What type of retirement village?
There’s a broad range of options – from a straightforward apartment purchase with shared facilities (such as a swimming pool and an onsite manager) to a large-scale retirement village including all aspects of care from independent (townhouses or apartments), serviced apartments (if you need additional care), resthome care and private hospital.
Take the time to visit a number of different villages and retirement options in your chosen area. Think about whether you would rather be in a smaller community of people requiring a similar level of care as you (accepting that, as needs increase, you may need to transfer elsewhere) or whether you would prefer a larger village providing a range of support and living arrangements to cater for a broader range of needs.
Talk to your family, friends, and village residents to find the best fit for you. Couples often want a village where care can be given to each partner, so that if one becomes unwell, they could be cared for in a resthome or private hospital facility on the same grounds as the more independent partner.
Your right to live at the village is usually recorded in an Occupation Right Agreement (ORA). This is a contract between you and the village, giving you the right to live in the unit for your lifetime for an entry payment and ongoing obligations to pay for services provided at the village. You don’t own your unit; you don’t usually take any capital gain (but may bear a capital loss) on the sale of the unit.
The village’s statutory supervisor registers a first charge over the land that the village sits on. This ensures that if the village operator defaults on any bank funding, the bank can only sell the village as a going concern; that is each unit cannot be sold separately. The statutory supervisor also reviews the village financial records and insurance cover.
- Facilities fee: usually a fee in the range of 25%–30% of your entry payment, deducted over the first three to five years of your occupation. This is a book entry deducted from the amount you receive when your unit is sold.
- Monthly outgoings: covers services provided to the village, for example, rates and insurance. This may be a fixed rate throughout your occupation, increase in line with CPI or National Superannuation increases, or may be varied by the village on written notice.
- Additional services costs: many villages provide a range of additional services (in packages or on a user-pays basis). Ask if you can engage external providers or must you use the village provider?
- Transfer charges: you can usually transfer from one unit to another within the village if one is available for a fee (a fixed sum or percentage of the purchase price).
- Costs on sale: while your unit is being marketed, you must continue to pay outgoings. Many ORAs also require an administration fee on sale. This can range from hundreds to thousands of dollars.
It’s a good idea to get us to review and discuss the ORA with you. Once you sign the ORA, there’s a compulsory ‘cooling off’ period of 15 working days during which you can cancel and obtain a refund of your deposit.
Buying into a retirement village is often described as the worst investment you can make. There are significant costs involved in the contract you sign with the village operator and you should be aware of these before you sign on the dotted line.
But it’s not just about the money. Balancing the financial cost against the other benefits of a retirement village lifestyle and support structure is important too. Think hard about your priorities and understand the costs associated with retirement village living. Then sit back and enjoy the retirement lifestyle that best suits you and your family.