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 2019. Much of the information, but not the commentary, comes from an excellent annual industry report, "2018 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 the Village operator. There is 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 the average stay s 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 substantially older.
What kind of interest do you purchase in your Unit?
The vast majority of Village residents (86%) occupy their properties on a Loan & Lease or Loan & Licence basis - freehold or strata interests are uncommon, and pure rental arrangement 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.
We are not sure 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 suggest that price increases have been running in the order of 4% per annum compound nationally. But averages can mask a lot of individual variability and this wont 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 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.