Westwood Conveyancing

Retirement villages becoming more affordable but beware the bigger picture

The 2021 Retirement Census, an annual collection of retirement village data compiled by the Property Council of Australia and PWC, provides good insight into a wide range of aspects of the industry, including the use of technology, building types, contract terms and the profile of people moving into retirement villages.

Tony Massaro, partner at PWC, says the census shows that the onset of the COVID-19 pandemic highlighted the value of retirement villages.

He points to four key sets of data from the census:

• The number of people moving into retirement villages is growing, with 90 per cent occupancy – up from a 2020 occupancy rate of 87 per cent.
• Homes in retirement villages are selling faster, with the time from vacation to settlement dropping from 261 days to 223 days.
• Development supply is increasing, with 10,500 new homes to be built over the next three years.
• Affordability is increasing, with the average two-bedroom home in a village being 55 per cent of the median house price in the same postcode, down from 67 per cent.

While PWC calls it “affordability”, I think the better term would be “price”. Whether that price is affordable to a senior depends on a host of other factors, including the potential impact on an age pension.

For example, if you are a single person with $150,000 in financial assets, and you downsize from a $1 million home into a retirement village for $550,000, that adds $450,000 into your assessable assets for age pension purposes and takes your pension from $25,678 a year to zero.

The other element of retirement village prices is the exit fee. As a general rule, the less you pay upfront the more you pay at the end.

The census showed 55 per cent of retirement village contracts have an exit fee based on the purchase price, with the resident receiving no capital gain or loss when the property is sold.

Almost one-third have an exit fee based on the sale price, with any capital gain or loss being shared between the resident and the village operator.

For the vast majority of contracts, the exit fee was 36 per cent or less, with most (72 per cent) fees accruing over six years.

While many retirement villages offer alternative payments, these were not captured by the census.

A key consideration when looking at an exit fee is the buyback period.

State-based legislation prescribes the criteria and timeframes for buybacks; however, the census shows that 52 per cent of contracts are offering residents a buyback in a shorter period.

Given that the average age of people moving into a retirement village is 75 and the predominant reason for leaving is to move into residential aged care (44 per cent) these buybacks are obviously a key part of their value proposition.

If you are thinking about downsizing and moving into a retirement village, it is essential to understand the bigger picture.

Do not just seek a contract that is “average”. Look for one with the right balance of rights, responsibilities, and costs.

Source: smh.com.au/money/super and retirement

By Rachel Lane – April 16, 2022

Important information 

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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