A Snapshot Introduction to Retirement Villages in Australia
On this page we provide a very quick introduction to Retirement Villages in Australia, as at the end of 2021. Much of the information, but not the commentary, comes from an excellent annual Industry report, the " PwC/Property Council Retirement Census".
The Industry does have some very good operators, but it remains the case that individuals moving into retirement village need to do their homework, regarding both the reputation and financial strength of individual Village operators. There is some progress being made in simplifying and standardising agreements but nonetheless it is an individual's responsibility, together with their legal and financial advisors, to ensure that they fully understand any contractual documentation they sign - particularly with regard to deferred or exit fees.
Across Australia, on a very consistent basis, the average age on entry to a Retirement Village is around 75; with an average stay of between 8 to 9 years. It's important to appreciate that although retirement villages may be advertised for "over 55's", the age profile is actually substantially older. The figures for 2022 reflect a continual increased "ageing" of the population in retirement homes - perhaps a consequence of the Covid pandemic.
What kind of interest do you purchase in your Unit?
The vast majority of Village residents (88%) occupy their properties on a Loan & Lease or Loan & Licence basis - freehold or strata interests are uncommon, and becoming more so, and pure rental arrangement are still (very) rare in terms of the villages taking part in the survey.
The Pricing of Retirement Village Units
A major industry selling point is that entry to a retirement village often costs substantially less than purchasing a freehold property in the same area - in other words, retirement villages offer a lower entry cost. The chart below demonstrates that price of a two bedroom independent living unit (ILU) is indeed typically well below that of the median house price in the relevant suburb, with a few exceptions, and has moved even lower over recent years. However, that is very much more a consequence of extraordinary increases in residential housing than a re-pricing of retirement unit prices.
However, we don't think this is always a valid comparison, and it needs to be appreciated that substantial deferred payments typically apply at the end of any occupancy; so the "entry cost" is not the full cost of occupancy. There are a whole variety of deferred payment structures, and they are dependent upon how long an individual stays in the retirement village, but you can assume that after 6 to 8 years of occupancy an occupant may have 35% or more of their loan/entry price deducted as a deferred payment. Bear in mind however that retirement villages will often offer a range of services and support that would not be available to an individual occupying freehold property, so this is not an "apples for apples" comparison.
Finally, in terms of how prices for Village units have moved over the last few years - the Chart below suggests that price increases continue to run in the order of 4% per annum compounded nationally. There was a slowdown evident in 2020, probably because of Covid 19, but prices have bounced back in concert with other property prices around Australia. Averages can mask a lot of individual variability and this won't necessarily reflect pricing in your particular area.
Retirement Village and Aged Care Co-Location
There has been a clear trend evident of co-locating Retirement Villages and Aged Care residential facilities, with the conspicuous exception of Tasmania and SA. It provides, in theory, for residents to have a smooth transition from independent living to aged care, on the site, if required. Certainly a number of potential residents will see it as advantageous and it is likely to offer operational benefits to operators. Note that although the survey suggest there are no co-located facilities in Tasmania and SA we are aware of retirement villages in SA adjacent to substantial residential care facilities run by the same operator, so this may be a scope or definitional issue.
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