Retirement Villages

Updated 23 December 2019

Before we start off, we want to make one thing clear - retirement village units are not investments. You are NOT buying a house; instead you are buying into a lifestyle. And you will lose 20% to 30% of your purchase price when the unit is resold. You will also be forced to pay a weekly fee and live by a set of rules. Before making any decision, it's essential to triple-check everything to make sure you understand exactly what awaits. Residents all over New Zealand speak warmly of their retirement village life, but if you get it wrong it will almost certainly become a very costly mistake. 

New Zealand's Retirement Village Industry in 2019

• New Zealand is seeing a boom in retirement properties springing up all over the country. What’s on offer ranges from pokey units on busy roads to luxurious resort-styled villas on leafy grounds.
• The benefits of retirement villages are extensive, and all aim to offer a comfortable, hassle-free retirement where all household worries are taken away - in theory.
• But there are many things to watch out for, and for the first time in New Zealand, MoneyHub has published a guide to retirement villages that looks at the pros, cons, must-know facts, FAQs, what to watch out for and checklists. 

As this is the first version of our this guide - if you have any tips or comments which would help our readers, please contact our research team. 

Know this: 

• Making the decision to move into a retirement village can be complicated, and it's hard to know what to ask without knowing all the risks and drawbacks. Not knowing something until it's too late could create problems.
• With most retirement units, you are not buying a freehold property, i.e. you won't own the land. This needs to be considered to ensure value for money, given land values in parts of New Zealand are at record highs. For example, you may say "$750,000 for a two bedroom unit in Auckland is not too bad" but in reality it's built on land you don't own, so the value is much less.   
• Few people know or understand that the retirement unit you buy may go up in value, but what you or your estate will receive is between 20% and 30% LESS of the original price when it is later sold.
• In addition to the upfront costs, there will also be ongoing costs every week for the use of the facilities, as well as other fees that can catch residents out.
• To avoid unpleasant surprises, knowing what you are committing to in detail before selling up and moving in is the only way to ensure a comfortable experience.

Our guide covers:

• Understanding the Upfront and Ongoing Costs of Living in a Retirement Village
• Benefits of Retirement Villages
• Retirement Village Drawbacks
• 8 Must-Know Facts About Retirement Villages
• FAQs - covering LTO, ORA, DMF and more
• ​Retirement Village Checklists
• Alternatives to Retirement Villages

What is a retirement village, and how is it different to a rest home?
Retirement villages are designed to offer independent living facilities, by way of a townhouse, villa or apartment. Some properties offer additional facilities, such as serviced apartments, care suites, rest homes, hospitals and dementia care units. The benefit of a continuum of care retirement village is that it will offer a range of facilities which can be used as needs increase. This provides far less disruption to residents who can transfer between facilities within the property as needed, either for the short term (i.e. when recovering from an illness) or long term (if the individual develops dementia or needs assisted living). 

Rest homes, often confused with retirement villages, are specific facilities where assisted living (meals, nursing care etc) is provided. The often have dementia and non-dementia wards and are far smaller in resident numbers. Unlike retirement villages, residents do not enjoy independent living. In most instances, residents pay a weekly fee to stay rather than buying into the rest home. 

Understanding the Upfront and Ongoing Costs of Living in a Retirement Village

Many media stories, such as this North & South feature, talk about the costs and fish hook terms and conditions that often given the impression of profits before people. Our list below outlines how retirement village companies make their money, and what you need to understand before signing up.

Upfront Purchase Price

In most cases, what you are buying is not the land or the building, but the right to live in the retirement village. It is similar to leasehold property, but the difference is that the lease (or right to live in the village) end upon death or if you are permanently transferred to another facility. So when you see a one bedroom unit selling for $500,000, what you are buying is the right to live there until you can't live there anymore. All you will pay after that is a weekly fee to cover ongoing costs (discussed in point 3. below).

Understand the Deferred Management Fee (DMF), also known as the 'facilities fee' and 'village contribution fee'

Unlike residential property, you or your estate will not receive the 'market price' for your retirement village unit when it is sold. With every unit purchased, there is a deferred management fee in the contract, which can be 20% to 30% of your original purchase price.

How does this work?
Quite simply, you pay the DMF fee when you permanently leave the unit. It is not a cash expense - it is deducted from when your unit sells. As an example, if you originally purchased a unit for $500,000, you will pay between $100,000 (20%) and $150,000 (30%) depending on the terms offered by the retirement village owner. What you receive back will be $350,000 or $400,000, and only when the unit sells.  

No flexibility in selling, and no capital appreciation gains
Many retirement village companies make it a condition that when it comes to resale, you must sell through their company. This is a requirement to protect the village from outside influence and third parties getting involved, and gives the company full control over its property. Because the retirement village company owns the land and buildings, they set the resale price. If your $500,000 unit sold for twice as much, you would only receive the original purchase price less fees. 

Money can be tied up
Retirement village companies ultimately control the resale market - if your village falls out of favour or your unit is less desirable than others available, reselling may take some time to transact. Many companies prohibit third-party real estate sales agents from handling the property for at least 12 months, meaning your investment can be tied up and you won't have any power to hurry along a sale.

Weekly Fee

The weekly fee covers utilities and services such as gardening, property maintenance, council, insurance and upkeep of the shared facilities, and varies from village to village. 

What happens after you leave the retirement village?
If you transfer to another property or die, your unit will go on the market. During this time, the retirement village company incurs costs as if you were living there. Some companies continue to charge the weekly fee until the unit is sold, but others do not. It's important to know what the situation is before signing up.

Capital Loss (if the unit is sold for less than you bought it for)

Some operators guarantee that you won't lose money if the price of the unit falls on resale. Others don't. In such cases, the agreed 20% to 30% deferred management fee charge shields owners from drops in the market price. Such information about resale values will be in the contract and need to be fully understood before proceeding.

Ad-hoc fees for routine tasks

Retirement village operators offer a lot of services that are pay-as-you-need. For example, meal delivery to a unit, mail collection and changing a lightbulb usually attract fees billed to the unit holder. It's not unusual to pay $10 or $12 for mail to be collected, which can be frustrating unless you're aware of these costs before moving in.

We've been told by readers that some retirement villages don't permit local DHB support services from entering the property. Instead, the retirement village offers a range of similar services at fixed prices. This means that government-funded services for personal care and domestic assistance are not available to residents. Before deciding on a retirement village, it's important to ask about the policy of allowing outside assistance to enter the retirement village premises.

Benefits of Retirement Villages

It is no secret that retirement units rarely make good financial investments, but beyond the money they offer an unrivaled quality of life experience. Many residents claim they have never been happier in retirement villages, some have even reported in media stories that they regret not moving in sooner. In this section we outline the benefits of retirement village living.

Safety Monitoring with Prompt Response Times

Units usually come with safety monitoring, for example panic buttons, which activate when there is a medical issue. Response times are prompt given staff members being on hand. This provides added 24/7 security with medical services who can swing into action instantly.
​

Villages promote themselves on offering hassle-free living

The responsibilities of day to day repairs and maintenance are with the retirement village operator. So if something breaks down, such as the hot water system, it's a quick call to the onsite office to either get it fixed immediately. Residents never have to mow lawns, clear out spouting, paint walls or deal with trades people. Instead, assistance is convenient and prompt, with the weekly management fee covering the costs. Many residents report feeling safe, secure and looked after by their retirement village operator as a result.

Leaving for a holiday is also easy - residents can 'lock and leave' when it suits them. There's no mail to stop, water to turn off, garden to worry about - everything is taken care of by the village operator. 

The instant social activity and a sense of community offers health benefits

There are many reasons to move into a retirement village. Some people do it as a couple, others do it alone after being widowed. Many retirement villages offer a range of facilities, such as a bowling green, swimming and spa pool, library, village centre, gym, bar, hair salon, movie theatre, pool table, so social interaction is available 'on tap'. 

By living in a retirement village, you're instantly part of a community of similarly aged people. With that comes social contact, interaction, companionship and physical and emotional security. Children of residents repeatedly claim that these factors greatly enhance their quality of life, as well as combine to extend the life of their parents. This is due to social interactions, physical activity and hobbies in general can contribute to making individuals happy and healthy.
​

The units are cheaper than neighbouring freehold property

Because retirement village units are usually not freehold property, the prices will be cheaper than neighbouring freehold property. The benefit is that retirees can release considerable capital by selling their mortgage-free homes and moving to a retirement village of their choice. 
 

Ongoing costs are fixed and efficiently managed, giving retirees peace of mind

Retirement village operators will take care of any cost related to your property, and because the units are all managed together, there is cost efficiencies for every expense incurred. Best of all, retirees won't need to worry about keeping money aside for fixing roofs, replacing windows and any other maintenance issue - huge expenses for anyone, let alone retirees. With everything handled by the retirement village operator, there's lower costs of every resident overall. The result means superannuation payments can be applied to only the ongoing maintenance fee and personal expenses, and nothing else significant in relation to the property.​

Retirement villages can offer a range of living options which factor in the long-term

Depending on the size of retirement village you are looking at, there can be a range of living options. Examples include self-care units, assisted living units, hospital care and specialist wards. What works for you is a matter of personal preference, budget and location. But if you believe that living in an all-in-one village that covers the spectrum of aged-care facilities, shopping around is important to know what is and isn't offered. You may need to be prepared to move further from your existing home as well. The benefit is that the right option will reduce the chances of moving outside of the village should your needs increase later on. 
​

Moving into a Retirement Village frees up money from your home

The general rule is to not spend more than 50% on your home value on a retirement unit, but in certain parts of New Zealand this can be problematic. Having a cash cushion will help towards day-to-day costs and long-term needs (such as assisted living or rest home care), in addition to superannuation payments.
​

Retirement Village Drawbacks

20%-30% upfront fees as standard, with ALL capital gains given to the retirement village owner

The village operator will charge 20% to 30% by way of upfront fees, known as the deferred management fee. This means that if you buy a unit for $200,000 with a 30% upfront fee, the most you can receive later is $140,000 - $60,000 is paid to the operator. 
 
And in almost every retirement village contract, the operator is entitled to all the capital gains when the unit is resold. This means if you purchased a unit for $200,000 and twenty years later is sells for $800,000, you or your estate would only receive $200,000 less fees, or around $150,000. Retirees lose all the capital gain to the operators. 

Rising weekly costs which eat away at fixed superannuation payments

There can be a lack of information around the weekly management fee. Some retirement villages offer fixed fees for life, but many don't. As most residents are on fixed incomes, there is a risk that the weekly fee eats into more the weekly superannuation payment time, leaving retirees with less spare cash. 

Retirement village residents are not guaranteed automatic entry to onsite assisted living or rest-home care when their needs change

Many retirement villages offer on-site hospital rest-homes, and operators will claim that residents will be 'prioritised' for entry should their needs change. However, this is not a guarantee and it all depends on the waiting list. Further to that, if hospital care is needed, this is an extra service and can come with an additional day rate. 
​

You can't change your mind without losing a LOT of money

In general, once you sign the contract, you will be forced to pay the 20% to 30% fee upon moving out. Some operators such as Ryman offer a 90-day change-of-mind clause, but after that you're fixed. If you don't like living there for whatever reason, it's very expensive to move out. For this reason alone it's essential to really do your homework on the property to make sure it meets your needs. Our checklist (LINK) offers more details about what to look for.

Rules are strictly enforced, and may not suit your lifestyle

There are plenty of rules when it comes to retirement village living. Rules include:

1. Pets - dogs are usually a no, cats often a yes, but policies vary between operator and village. 
2. Guests - rules are in place for visitors, with maximum nights and approval needed. If you feel as if this is going to be a problem, knowing the guest policy before you go any further is really important. You also can't sublease if you go away, nor rent out a spare room. 
3. Behaviour - residents can have their right to occupy their unit terminated for bad behaviour, effectively forcing the resident into homelessness.
4. New love interests - if you find love in your village, you'll need approval from the operator to co-habit your unit.

8 Must-Know Facts About Retirement Villages

Retirement Villages are BIG Business in New Zealand, and Growing

According to research from global commercial property firm JLL, the number of retirement village units jumped almost 30 per cent from 2011-2016. In 2017, 28,200 units were available throughout New Zealand, up from 21,815 five years earlier. Added to this is some 15,000 new units in development. Five of the major retirement village operators are listed companies on the New Zealand Stock Exchange. 

Data from JLL suggests the number of New Zealanders aged 75+ will swell 33% (around 100,000) between 2018 and 2023 to reach 400,000. All of this points to one thing - retirement living is here to stay, and demand for properties in all budget ranges will continue to grow.

You don't OWN your unit, you only own the right to use it

Because of this, residents cannot sell the unit to someone else, nor can they sell the occupation rights without permission with the retirement village operator. The process is fairly standard across the industry - if a resident decides to leave, or dies, the operator advertises the unit for sale. Once sold, the vacating resident, or their estate, gets paid the amount they paid to get in, less the ~30% deferred management fee. 
​

Your retirement village may grow in size and change in age demographic

The operator may have grand plans to extend the number of units, and if you're unlucky, you may find yourself living beside a construction site. You may also find marketing drives recruit residents that are older that you, which can change the dynamic of the village. It's essential to remember that the operator has full control of the future of their village - while there may be a residents' association, all the cards are held by the corporate body running the village. 
​

If you move on, you or your estate won't get any money back until the unit is sold

This can take several months, as retirement village units traditionally are less liquid that residential property. This means that if you need the money to pay for rest home care or really anything else, you will need to be patient. During that time, the weekly management fee may be charged and deducted from the final payout. .

There is legal protection, but it's still a case of 'buyer beware'

The Retirement Villages Act 2003 requires prospective residents to take independent legal advice to ensure they understand the financial implications of the contracts they are signing. Despite this, there are many finer details that are best seen before being signed. Our checklists (LINK) outline what to look for before making any commitment.

Many well-known retirement village operators are large, profit-focused companies

Frequent stories appear in the media announcing big profits for retirement village companies. Companies like Ryman Healthcare, listed on the NZX, have seen its share price double over two years. Columnists like Diana Clement frequently challenge the financial implications of anyone signing up to live in a retirement village, and the power the big companies have. 

The reality is that New Zealand's retirement village options are largely controlled by the big providers, including Ryman, Metlifecare and Bupa. 

Around New Zealand, thousands of retirement village units are being built. Ryman Healthcare has recently built (or is building) new villages in Devonport, Lynfield, Henderson, Hobsonville, Hamilton, Birkenhead, Petone and Rangiora, Metlifecare has plans to develop extensively around Auckland - Botany, Albany, Orion Point, Hobsonville, and Beachlands are all recent announcements.

Heading

TBC

Heading

TBC

Retirement Village: Frequently Asked Questions

​How much will it cost me to live in a retirement village?

It depends on what you are buying; like residential property, there are many different options and grades. As you would expect, the higher the quality, the more you will pay. Also, the facilities on offer range between properties, and this will be factored in to the upfront price. Generally you can budget between $200,000 and $800,000 for a one or two-bedroom unit, depending on the location. Three bedroom villas in top Auckland suburbs can command as much as $1.5 million. In our survey, we (unsurprisingly) found Invercargill to offer the cheapest units, where as Auckland and Tauranga offered the most expensive, consistent with land value differences between the three cities.

How do I finance a retirement village unit?

Most people sell their existing home and purchase a retirement unit. Often, the cost of the unit is below what the house sale was, meaning retirees can 'free up capital' to spend in their golden years. It's important to know that you will need to purchase the retirement unit debt free; this is because you don't own the property outright, so you won't be able to get a mortgage. In some cases, the retirement village operator can help with finance but this is on a case by case basis.

How much is the weekly fee, how do I pay for it and will it increase?

It ranges, but according to data obtained from the Retirement Village Association (RVA), the average weekly fee across New Zealand stood at $121 in 2018. This covers maintenance and the costs of running recreational communal areas, as well as administration and support costs. But often this won't include power, phone, and internet, so it's important to check before signing up to make sure you're not caught out. 

Most residents pay their weekly fees from their New Zealand Superannuation, and data from the RVA suggested that while there has been of less than $2 per week between 2013-2017, if fees do go up it directly cuts into what is left over from the weekly superannuation payment.

What happens if I can no longer afford the ongoing fees?

• The Retirement Villages Act gives you the right to consultation on anything that affects your occupancy or ability to pay. This means your financial situation must be discussed with you and follow a procedure - immediate eviction is not permitted.
• In some cases, you can ask to negotiate to defer payments which will be deducted from the unit price when your move on from the retirement village. If this is not an option, you can apply for a government assistance - the Accommodation Supplement may be available if you pass income and assets means tests. 

How does a retirement village make money?

​Retirement village companies make their money in four ways:

1. Charging upfront for the unit price, at market value (which will almost certainly always be more than the cost of building it).
2. Charging a ‘deferred management fee' (DMF), the 20%-30% fee deducted from your original upfront purchase price
3. Charging weekly ongoing maintenance fees to live in the retirement village.
4. Receiving the capital gains on your unit once it is sold, i.e. if the market price increases, the retirement village company sells it for more and keeps the difference between what it receives and what you paid.

What is an Occupation Right Agreement (ORA) and how is it different from a Licence to Occupy (LTO)?

A LTO gives you the right to live in a unit and have access to the retirement village's facilities and services, but it does not give you ownership of the unit. The offer of these rights is made in an Occupation Right Agreement (ORA).  The ORA is your contract and it covers:

• Upfront and ongoing payment obligations
• The village manager’s duties
• Procedures relating to meetings and consultation
• Termination rights and the complaints and disputes resolution process.

The Retirement Villages Act 2003 sets out in very specific terms what must be included in the ORA, specifically:

• What your costs will be on entering the village, on-going costs and how much you will be paid on leaving the village – this last amount will depend in part on how long you have lived there;
  
• The terms of transfer in villages where the occupation right agreement allows you to transfer from an independent self-care residential unit to a unit offering a higher level of care.

Who can re-sell the unit once I move on?

This varies from village to village, but most commonly it is the village operator. The specifics will be outlined in the ORA. It's important to know that in most cases, the capital payment, less deductions (such as the deferred management fee), will not be repaid until the unit has sold.

Can I change my mind after I move in and get my money back?

Usually, no. Some operators may offer a 'peace of mind' option to back out after a certain number of days, but this is rare and does come with specific terms and conditions. This means making your decision is even more important as there is no turning back. So if you fall out with a neighbour, get allergies from the garden or find the facilities lacking, you'll need to find solutions to make things right.

I have a contract with my retirement village signed before the law changed - what can I do to protect my rights?

Contracts drawn up after 2008 have to be very precise about costs and fees, thanks to the Retirement Villages Code of Practice 2008. A retirement home rip-off story on Fair Go highlighted the risks involved. Anyone who moved into a retirement village before this should have their contract checked, with the help of a lawyer, as it’s possible that changes could be made to bring them more into line with current agreements. 

Retirement Village Checklists

The decision making process for deciding on a retirement village should not be rushed. To help you decide, we've linked to some well regarded and extensive checklists below:

• Consumer Magazine's checklist addresses facilities and welfare
• RVA New Zealand's checklist addresses the reasons why you want to move, and the retirement village's general operations
• Sorted's checklists address lifestyle and financial considerations

Alternatives to Retirement Villages

A retirement village is not the only solution to assisted living, and there are many alternatives. Some of these include:

1. Downsizing your home to a smaller, single-level property with no gradients.
2. Modify your existing home with ramps and/or rails.
3. Arrange assisted-living and/or visiting carers, depending on what your needs are. This can include cleaners, home-help, assisted support. It can be paid for by selling down investments, family support, government help and/or using equity release mortgages to make money available.