Costs of a comfortable life

By JANINE OGIER

Retirement villages can look like top-notch holiday resorts. Their manicured lawns and gardens, swimming pools, bowling greens and full schedules of daily activities can offer the promise of healthy and secure living.

But like luxury holiday destinations, not everyone can afford the five-star lifestyle.

It is a big financial decision. A villa or apartment in a retirement village can cost as much as a house in Auckland, anything from $200,000 to $500,000 depending on the neighbourhood, the age of the village, and even the state of the residential housing market.

In addition, you face entry costs, ongoing fees, and exit costs. And you have to remember you do not actually own the property. The villages are owned by the operators, who sell the privilege to live there.

In most cases any gains in the value of the property made over the time of residency are profits for the operator.

"People fall in love with a village because they are lovely places," says Richard Davis, general manager of sales and marketing for the largest retirement village operator, Metlifecare.

However, people need to seek independent financial and legal advice before making a decision.

"It is a major transaction and they need to understand what the financial aspect of it is," Davis says.

John Birkbeck , 80, and his wife Jean, 77, moved into a two-bedroom apartment in a retirement village in Titirangi, Waitakere City, in May.

John Birkbeck says they lived for many years one street away from the facility and were very familiar with the development. They didn't look at any similar villages because they already knew six couples who were happy there.

They moved after deciding they could no longer look after their townhouse.

"It's important that you work out the outgoings in your house and what they will be here," John says.

"We are slightly better off now than we were in our townhouse."

Residents buy either a licence to occupy a residence, a strata title, a registered lease, or a cross-lease.

Typically a clause is built into the contract allowing the operator to buy back the unit at the end of the stay - less an annual 4 per cent cut from the purchase price, up to a maximum of 23 to 24 per cent.

For example, an operator may sell a unit to someone for $400,000. If they stay the average of eight years, the village will buy it back for a discount of up to 24 per cent and will charge a refurbishment fee of, say, $5000 to $10,000.

So, the operator pockets a gain of around $96,000. They also get to sell the property on at the new market price.

In simple terms you "ring fence" some savings in the licence because the funds are recouped on departure.

But you also pay for using the village facilities and have to cover your day-to-day expenses.

People need to be aware it is not an investment in the usual sense of the word, says Margaret Owens, the manager of Rosehill Gardens retirement village in Avondale, Auckland.

Buying into a village is not like buying a freehold title to a house, but you can "sell" on the licence when you leave at the same time as forfeiting a percentage of the proceeds for the benefit of having used the facilities.

"You are actually not losing money. I often describe the amenities contribution or the portion retained by the village as a development levy. People understand that and understand they won't get it back," she says.

An ongoing service charge is billed weekly. It will normally include council, sewerage and water rates, and external or internal maintenance of villas and apartments.

The fee may also cover garden and lawn maintenance, building repairs and maintenance, fire insurance, village bus, management and nursing staff and the operation of an emergency call system.

Metlifecare's Davis says a contract signed by a new resident allows some flexibility for changing circumstances.

For instance, rates can go up if a resident needs to change to a serviced property where their laundry and cleaning is taken care of. "You have to have money in the bank to cover that," says Davis.

Owens says the key is not to spend your entire life savings on the property itself. Keep some capital aside to provide an income and support the costs of living in a retirement village.

"That makes it affordable and they are not so geared up that they don't have anything to come and go on once they get here."

At present, the operation of retirement villages falls under the jurisdiction of the Securities Act.

Villages have prospectuses, audited accounts, investment statements, and a statutory supervisor.

Elected committees also look after residents' interests.

Under planned legislation, retirement villages will be governed by their own law, the Retirement Villages Act.

When in force the act will require retirement villages to register with the Registrar of Retirement Villages.

It will require disclosure of key information to potential residents, include a code of residents' rights and provide for an industry code of practice.

The Retirement Commission will soon call for submissions on the draft code of practice, which is being developed with input from the retirement village industry.

The key message from retirement village promoters is that if you are thinking about moving into one, don't procrastinate.

"A lot of residents leave the decision to go into a retirement village too late," says Retirement Villages Association executive director Edward Richards.

"Perhaps they are not well, and then they don't get the value that they would if they moved in earlier."

WHAT IT COSTS

* Between $200,000 and $500,000 for a unit in Auckland.

* Your solicitor's fees.

* A settlement fee of around $400 to the village's solicitor.

* Weekly fees of around $80 to $100 for a two-bedroom property in Auckland.

* Or weekly fees of around $160 to $220 for a serviced apartment in Auckland.

* Amenities contribution of around 23 per cent of the purchase price when you terminate the contract.

* Refurbishment costs of around $5000 to $10,000.