What you need to consider
There are over 48,000 residents in over 450 retirement villages in New Zealand and the number is increasing. This is big business and very profitable.
The six largest Retirement Village operators – Ryman, Metlifecare, Summerset, Bupa, Oceania, and Arvida are significant players in the New Zealand Retirement Village market. Between them they have an estimated 43% of villages throughout the country and the larger than average size of their villages means that they account for 60% of national unit numbers.
Their offers vary depending on:
- Minimum age of entry
- The Deferred Management Fee (DMF) calculation
- Weekly fees
- Shared capital gains or not
- One or two DMF’s
- Weekly entertainment
- Care onsite – none, partial or full continuum of care
- License to Occupy (LTO) prices ranging from $200,000 to $4 million+
Buying into a retirement village is a very similar cost to buying a house; $200,000 to $5M. Occupants are effectively giving the retirement village an interest free loan and giving up capital growth.
The minimum entry age varies between 70 to 75 with the average occupancy of 7.1 years due either to death or moving into full time care.
The retiree has a life time occupancy but not a title and therefore is unable to use the asset to fund say a reverse mortgage.
Beware of promises of future facilities, get this in writing. Make sure you both sign the documents. If only one of you signs and the older partner dies, the younger partner may be below the minimum age and be required to move out at the discounted price.
The table below compares the costs against each operator (date 1 May 2022) for an initial $500,000 License to Occupy.
The above table shows if you paid $500,000 for your retirement village home for the first 3-5 years the deferred management fee accumulates.
For example, for Ryman Healthcare each year there is a charge against your property of $20,000. By year 5 a total deferred management fee of $100,000 has accumulated. If you died or moved out this is offset against your initial outlay of $500,000. You will get back $400,000.
In addition to the deferred management fee the operator normally keeps the capital gain. For example, in the case of Ryman if properties grew by 8.5%pa over this 5 year period the operator keeps the capital gain of $250,000 plus the DFM of $100,000.
For a summary and the questions you should be asking before making a decision which retirement village to go into, please read this Retirement Village Guide.