Retirement village life
The upside (and downside) of downsizing
New Zealand’s ageing population has created a boom for retirement villages, with record numbers being developed. For many looking to retire or slow down, retirement village living is attractive – and it’s not hard to see why. A new apartment or cottage in a secure, well-maintained environment, offering a lock-up-and-leave lifestyle, and providing resort-like facilities such as cafes, gyms, pools, bowling greens, libraries and men’s sheds can be very appealing.
Many clients tell us how happy they are to have made the move, some even say they wish they had done it sooner, but retirement village living is not for everyone. It’s important to think carefully about what this move means for you – both financially, and in terms of your current and future needs.
Do your homework and consider your options. Why do you want to live in a retirement village? Will this move meet your needs in the future? What happens if your health or financial circumstances change? Have you considered the alternatives? Do your family and friends support a move?
We recommend you visit as many villages as you can, including those close to where you live now (you may want to keep up connections to clubs and your social circles), and talk with family and friends about their villages and about your intentions. You’ll want their support to make sure the move is right for you.
You should also look at other options such as staying in your current home (or downsizing to a smaller one) and bringing in help for gardening and maintenance, having home carers visit, using driving services and so on. If you are ‘house rich but cash poor’, you could consider taking out a reverse mortgage although this should be investigated fully beforehand.
Retirement village essentials
A ‘licence to occupy’ is the most common structure used for retirement villages. This licence gives you the right to live in a unit for your lifetime. If a couple owns a licence it continues until the survivor has died. It is usually called an Occupation Rights Agreement (ORA).
As residents, you won’t actually own the unit and are unable to sell or lease it (including renting it out as an Airbnb property). When you purchase a license to occupy you will sign an application and pay a deposit. You must be provided with a package of the documents (including the ORA and a disclosure statement) setting out your rights and obligations. It explains the financial implications of the purchase, provides details of development plans, village rules, policies, shared facilities and much more.
You should read all this material, and then bring it in to us. The legislation requires us to complete a formal certificate to confirm that we have explained the nature and effect of these documents to you and that you understand them before you sign.
It’s worthwhile remembering that you do not own any part of the village land or the buildings so you don’t usually benefit from any capital gain or carry any capital loss (although some ORA documents do have different provisions).
The cost of retirement
It is standard practice for the village to deduct a ‘deferred management fee’ which covers the cost of operating and maintaining the village. It usually ranges from 20%–30% of the ORA purchase price. It is accumulated over the first two to five years that you occupy your unit, but will not be deducted until your unit has been sold to a new resident. At that time the village will pay you a repayment sum, less any fees you owe to the village, any costs of repair or reinstatement and the deferred maintenance fee. This means that when you leave the retirement village, you will receive a sum significantly less than the price you paid for the right to occupy your unit.
Residents collectively contribute to the village outgoings (such as insurance and rates) through a regular outgoings fee. This fee is usually fixed for the duration of the ORA. However, increases may be linked to annual CPI increases or New Zealand Superannuation, or may be increased on notice from the village.
You will also pay for telephone, power, internet or SKY tv. You will need to consider whether you will be in a position to pay any increasing utilities costs. It may be fine when there are two of you, but may be harder if one of you dies. If you are unable to pay your fees, some villages will let the fees accumulate in their books until you sell – meaning there will be less cash on terminating the ORA, but you can continue living in your unit.
However, there is now some relief in relation to the costs of living in a village. Recent law changes mean that a resident who meets the financial eligibility criteria can request a partial refund of their contribution to their village’s rates payment. It’s a similar situation as if you owned your home.
What happens when I move out?
On termination, the deferred management fee and any other outgoings you owe the village will be deducted from your repayment sum. Your monthly or weekly fees are likely to continue until a new resident is found.
Some ORA documents allow the village to charge a percentage of your original purchase price as an ‘administration fee’ when you terminate. You may also be charged for the village’s legal fees for arranging the end of your ORA.
If you move from one unit to another in the same village (or to a new unit in a village owned by the same operator) your ORA may allow the village to charge you a transfer fee.
If your unit is modified to meet your needs, you will usually pay the extra costs. On termination, the alterations may need to be removed, also at your cost.
When you vacate your unit it will be inspected to assess what work needs to be done before it can be offered to a new resident. Although you are not liable for fair wear and tear, you are liable for repairs.
When you terminate, most ORAs record that you cannot receive the repayment sum until an incoming resident pays for the new ORA. This means you or your family may wait months for the cash. Some villages, however, now offer an advance part-repayment so that you can pay a deposit on a new home or to assist your family with costs if you have died.
Lifestyle village or full-care village?
Is a lifestyle village or a full-care village right for you? The former offers independence but within a secure community – sometimes with access to shared recreational facilities. The latter offers independent living units as well as a rest home and private hospital facilities.
If you are in a lifestyle village and your or your partner’s health fails, you may need to move to another village offering more care or to a rest home. It may be that if one partner is moved to a rest home, the other must remain in the unit until it is sold, which will make life more difficult and costly.
Moving from one village to another can be expensive – the deferred management fee is deducted for your unit on termination, so you will have less to spend on a new unit. In addition, a new ORA will start the clock again on another deferred management fee. However, if you move between villages owned by the same operator you can often arrange for a credit of the deferred management fee from your old unit to the new one (so you only pay this once).
Retirement villages are here to stay and are increasingly popular. They can be a great option for many people. However, our advice is to look around and do your homework, make sure your family is aware of your choice and speak to us for advice. We are always happy to help.