Good returns in aged care

Northplan director and senior investment advisor Simon Purvis believes New Zealanders should be investing in the elderly.

"The aged care property market offers more attractive returns in the long term than most other forms of property investment,'' he says.

Purvis compares the yields currently being obtained from more traditional commercial property to those from the aged care sector. "Even in the current property boom, I've heard of commercial property selling at yields as low as 6 per cent. The net return on Auckland industrial property is around 8 per cent and the net yield for central business district property is between 7.7 per cent and 8.7 per cent."

Aged care properties, by comparison, give better returns in excess of 9 to 10 per cent net yields.

Purvis says the sector also provides greater certainty.

"Generally speaking, these purpose-built facilities have longer lease terms, some up to 30 years, compared with the industrial sector, which has leases of only six to nine years.''

Aged care property is already a significant segment of the New Zealand property market, with an estimated value of over $1.5 billion. The sector comprises rest homes and continuing care hospitals.
Aged care properties are not retirement villages. A retirement village provides homes for people usually 55 or over who are fully independent and able to care for themselves. An aged care facility is, by contrast, a home for dependent people aged 65 and over. It focuses on the long-term care of individuals who are frail or suffer from age-related physical and mental conditions. Many of the residents cannot safely look after themselves and need a qualified caregiver operating within a purpose-built facility.

Individuals who choose to live in a retirement village must pay for their stay. By contrast, residents in aged care facilities are patients as a result of their health needs. The industry, is therefore, funded predominantly by the government's health budget.

Purvis points to New Zealand's population statistics to support his view that the future looks even better for aged care investment.

According to Statistics New Zealand, New Zealand's population as of December 31, 2004, stood at 4,084,200. The 65-plus sector accounts for 491,600 of this, and by 2011 will reach 552,000.

"This growth is likely to lead to increased demand for aged care facilities. A lot of opportunities exist in this growing market for people looking to invest.''