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The case for retirement villages – on behalf of the 98 per cent

We know that 98 per cent of the residents who live in retirement villages in Australia would strongly disagree with Alan Kohler’s views on the retirement village industry, expressed in his recent columns for Business Spectator.

That’s the percentage of residents who declared if they had their time again, they would make the same decision to move into a retirement village, according to the McCrindle Baynes Villages Census Report 2013, the most recent national retirement village resident survey.

No less a body than the Productivity Commission has stated that retirement villages, with their age-friendly houses and neighbourhoods, “can have a positive effect on the health and quality of life of older Australians”.

It is true that moving into a retirement village unit can be a complex transaction – because a retirement village is more than just the acquisition of a home. It also comes with services and amenities for the duration of a person’s tenure.

There are sound reasons for the deferred fee, which is a payment option offered by retirement village owners that are simply seeking to expand the supply of purpose-built housing for Australia’s rapidly increasing seniors population.

Deferred fees, which are used by the majority of retirement village operators, help to compensate the village owner for the up-front capital costs of building the common infrastructure of the village, which usually includes a pool, bowling green and community hall, and allow the resident to part-pay for these amenities at the end of their tenancy, instead of the start.

This brings down the cost of entry into the village. As a result, most retirement village unit entry prices are cheaper than comparable properties in the general community. Because of the limited income and assets of many seniors (78 per cent of the 180,000 Australians who live in retirement villages are age pensioners), this fee structure is very appealing.

Deferred fees allow them to use some of the wealth previously locked up in their family home for services or leisure. Indeed, according to the McCrindle Baynes census, 93 per cent of residents who responded felt their decision to move to a village was a “good financial decision”.

Clearly enshrined in the resident contracts is the percentage of the capital gain the resident is entitled to receive upon the sale of the unit to another party. The share of the capital gain can be negotiated between operator and resident before the contract is signed, and is often done in the context of the level of up-front loan and deferred fee.

Only the regular maintenance or service fees cover the cost of maintenance of the village and the amenities. Village operators do not make a profit from service fees – state legislation prohibits this.

Residents’ rights are protected by stringent consumer regulations contained in state legislation. The Retirement Villages Act in each state and territory differs slightly on minor aspects, but all contain fundamentally similar protections, from disclosure of information in the resident contract, to calculation of entitlements upon departure.

State governments and their departments produce a range of accessible information for people considering retirement living, often including fact sheets and a dedicated phone hotline. Residents are able (and encouraged) to seek independent legal advice before signing their contract.

It seems that Mr Kohler may also not have considered the other benefits of the retirement village industry. The reason the whole village sector exists is to enable senior Australians to remain independent for longer, have easy access to services, and be part of a social network.

Living in a village unit that is designed for a senior person’s needs, with features such as grab rails in the bathroom, easy access ramps and no stairs, reduces the likelihood of (government-funded) care services needing to be provided in the home, and delays (or avoids) entry into residential aged care.

With an ageing population, retirement villages are becoming more vital. They’re not just another housing choice for seniors, but can ease pressure on government budgets, which are under increased strain from rising health and aged care costs.

Moving to a retirement village is not an investment choice. It’s a lifestyle choice that an increasing number of Australians are embracing to maintain their independence and the happiness that comes from being part of a supportive community.

In our view, 98 per cent of village residents can’t be wrong.

This column originally appeared on Business Spectator on 11 July.