New, “fair” model lets residents keep their capital gains.
“Our residents have invested the most in their homes, so why shouldn’t they get the benefit?”
So says Adam Yates, CEO of Tauranga-based Karaka Pines Villages, whose company has developed a financial model in the eight retirement villages it runs whereby residents retain most of their capital gain when selling.
“We think it’s only fair they get the benefit of capital gain, not the village operator,” Yates says. “Unfortunately, this is not the case at most other retirement communities in New Zealand.
“The difference can be hundreds of thousands of dollars in their pockets. Not only will they be better off when they sell, but the model makes for a lot of happy residents.”
“I’m not swayed by what the industry thinks or does. My personal values are to treat people the way I would like to be treated and I believe I am in this to serve the people who choose to live with us and to make their lives less of a burden.”
Yates says the example of David and Anne (not their real names) shows how much residents can benefit. The couple bought a Karaka Pines unit in 2012 for $435,000 but, in 2019, David needed to move into a care facility.
“They sold their unit for $727,500 and spent $636,500 on a serviced apartment for Anne at the care facility, leaving them enough to pay for David’s care. If they’d been living at a village operating under the standard model, they would have ended up with only $304,000 and Anne would not have been able to afford to move to be with David.”
In another example, Yates says a personal friend of his inherited money when their mother passed away after living in a retirement village for 20 years. Despite the mother’s unit being valued at $1.1 million, the inheritance was just $100,000 – a figure Yates says would have been $935,000 under the Karaka Pines system.
Financial issues are a hot topic for Kiwi retirees. Consumer and Media Insight data (CMI) released by media audience measurement firm Nielson earlier this year shows there are 216,000 people aged 65 and over in New Zealand who prioritise financial independence and financial stability. They keep a close eye on their investments and nearly a quarter say they are reviewing these.
The data also revealed that 228,000 New Zealanders aged 35-54 are equal or primary caregivers for parents or other elderly relatives. Inheritance is likely, therefore, to be a major factor in their pursuit of long-term financial security.
Yates says capital gain protects a person’s investment and their freedom of choice. “Karaka Pines Villages was founded on a sincere belief in the core Kiwi value of getting a fair deal. That means residents will get more for their money and be a lot better off.”
Before establishing Karaka Pines in 2017, Yates worked as CEO of Manor Group, running aged care facilities and serviced apartments in the Bay of Plenty.
“They (the Manor Group facilities) were operated in the traditional model where the residents paid a large fee for the services and facilities we provided but didn’t get any capital gain on their home. We didn’t think that was very fair and there had to be a better way of doing it.”
He came up with the capital gain concept around 2010 when Manor Group considered building gated communities.
“We realised that our ideas looked very similar to retirement villages and so we asked ourselves ‘if a gated community can be developed profitably without taking the residents’ capital gain, why can’t we do the same for a retirement village?’ So, that’s what we did.”
Residents do pay two types of fees. One is a weekly fee covering the ongoing costs of running a village like insurance, rates, staff salaries and grounds maintenance which, Yates says, is significantly lower than the average in retirement villages.
The other is a one-off facilities fee payable when residents sell and leave the village. This starts off at 12.5% of the unit sale price, but can be 25% if the resident wants a fixed weekly outgoing fee.
Yates says residents who are selling also pay for refurbishment costs to ensure the unit is in a pristine condition for prospective buyers in the same way they would when selling the family home.
“Homes here are generously sized and beautifully built and the purpose of paying for refurbishment is to keep them fresh, contemporary and to maintain their value.”
The first Karaka Pines village was registered in 2011. Today, the company has a total of 108 occupied units in two villages – Roseland Park in Hamilton East and Kempton Park in Tauranga.
Another 269 units are occupied in six other villages under construction or partially built and when complete will mean the company has 825 units available throughout the country.
Other than Roseland Park and Kempton Park, the other villages are Karaka Lifestyle Estate in Auckland, Karaka Pines Rototuna in Hamilton, Karaka Pines Regency Park in Rotorua, Woodcroft Estate in Christchurch, Karaka Pines Waihi Beach and the latest village, Karaka Pines Papamoa in the Bay of Plenty.
For more information go to: karakapines.co.nz