Karaka Pines Villages: where residents get the capital gains.
Adam Yates remembers the conversations that motivated him to build a retirement village where – unlike the usual industry models – residents benefit from any capital value of their property.
Yates, CEO of Karaka Pines Villages, was running a number of rest homes for a previous employer, based very much on the industry standard where the residents paid a large fee for the care services and facilities provided but received no capital gain.
“I encountered people a number of times who, because of that traditional industry model, were effectively being trapped – as their capital had been eaten up. I began to feel very bad about it.
“There’d been a property boom in the preceding years – and large numbers of people had moved into villages where there was no capital gain. They had been left behind by the market and, when they wanted to move into other units or apartments, so that they could access care plans, they realised they couldn’t afford to leave the village they were currently living in.
“That’s what I mean by ‘trapped’. If your family moves away – as they so often do – and you want to follow them by moving to another village close by, you can’t. With Karaka Pines, you can sell up, take the money with you and move where your family is. I have always called it ‘setting people free’.
He’s not just talking about the capital gains to be made; Karaka Pines’ mission statement is “where people can thrive” and he is quick to point out that capital gain is a long-term scenario: “When someone comes into one of our villages, capital gains no longer matter; I labour this point with our management team all the time – at that stage, it’s all about values and how we treat people.”
That too can come under the heading of “setting people free”. Yates says, since starting Karaka Pines and their seven villages (Auckland, two in Hamilton, one each in Rotorua, Tauranga, Christchurch, and Waihi Beach, with another being unveiled soon in the Bay of Plenty), he has enjoyed multiple interactions with people “whose lives have been greatly enhanced by living in our retirement villages”.
Karaka Pines began this emphasis on capital gains and values-based living a long time (2010) before this year’s government review of the Retirement Villages Act. Prompted by many tales of unfair practices disadvantaging residents, the review will investigate consumer protection for residents and intending residents of retirement villages, as well as a balance between the rights and responsibilities of residents and operators of retirement villages.
Yates does not see the review persuading many of the big retirement village chains to change to a capital-gains basis. “There may be a few more who will do that but the industry standard is so attractive that they won’t be motivated to forgo making that much more money.”
So how does it work – and why does Karaka Pines Villages deal in capital gains when so many other retirement villages don’t?
First, he says, you have to adopt a more altruistic mindset. “Money isn’t everything to us – but we’ve learned to build a successful business without doing what the rest of the industry does with their residents; I can 100 per cent guarantee that, if you go into an industry standard village, your capital will be eroded away.”
Next, he says, build the village the right way: “You create a development carefully, so that you make a profit from just creating the village in the first place – so it doesn’t owe us any money. Our residents have paid us market value for their unit so what’s left is the need to pay the value of the services we provide.”
Financially, it works like this:
· Residents pay a facilities fee (otherwise known as an exit fee, payable when they leave) and weekly fees for the entire time they stay in the village.
· When it is time to leave, the village refurbishes the unit back to “as new” condition – the price of which (about $35,000, according to Karaka Pines Villages’ comparison model) is paid by the residents.
· The residents keep the capital gain when they sell their property. Depending on the fees structure paid for living in the village, the unit and the property market at the time, Yates says Karaka Pines residents end up about $200,000-$300,000 better off than residents in an industry standards village.
Because the average stay in their units is about nine years, Karaka Pines Villages have so far only seen “some dozens” of units refurbished and re-sold – and will need to wait for a bigger sample size so they can project further figures detailing the benefits for their residents.
“We refurbish units to ‘as new’ condition because it puts more money in our residents’ pockets,” he says. “If you look at villages that do not require refurbishment they sell, on average, for about half of what our units go for – and we can prove that.”
At present, with the downturn in the housing market around New Zealand, capital gains might seem a lesser factor – but Yates says “we know that will change. History tells us that it always does.
“Then there are all the other things that a good retirement village should bring you – companionship, security , social activities, maintenance and certainty. I believe that part of the role of a retirement village is to relieve people of anxiety, whether that is financial, health, loneliness or whatever. That’s what it is all about.”
Asked why more people do not know about Karaka Pines Villages, he says: “Well, I’d love to advertise on TV – but we can’t afford that.’
Other places which make more money from their residents don’t have that problem, he says. They’re on TV all the time – but their residents are paying.
For more information visit karakapines.co.nz