The sunny faces of the smiling seniors you see on the ads for retirement villages are not stock images posed by models or actors. They are real people in real places playing real pétanque, according to Adam Yates, owner and chief executive of Karaka Pines Villages. “All the images you see on TV are genuine. People are genuinely excited and happy.” Indeed, surveys show satisfaction levels among village residents consistently around the 90% mark.
“The camaraderie in the villages is second to none,” says Yates. “When people have that environment, and they have all the maintenance and stuff looked after, and then just have freedom to enjoy their living, it’s tremendous. I have no trouble saying you should move into a retirement village because they are just great places.”
And yet, last year, the Ministry of Housing and Urban Development – Te Tūāpapa Kura Kāinga launched the first review of the Retirement Village Act 2003. Its discussion paper identified 35 “issues” with the industry, along with suggestions for how they could be “addressed”.
A ministry spokesperson said it is now assessing the submissions received on options for changing the act and will provide Housing Minister Chris Bishop with advice later this year. “The minister will need cabinet agreement for any policy changes ahead of an amendment bill being drafted, introduced into Parliament and referred to a select committee. A timeframe for this has not yet been confirmed.”
It’s possible many people now in retirement villages will not live to see the outcome.
Village visits
The village landscape is an increasingly diverse one – from charitable establishments providing housing for the near indigent to the likes of the multimillion-dollar apartments in The Foundation (see Show them the money below). And plenty in between.
As president of the Retirement Village Residents Association, Brian Peat represents one group of stakeholders. He has set a goal of visiting every village in the country and made it to 192 of the 450 or so facilities so far and spoken to residents. He says the satisfaction surveys don’t tell the whole story because “older people do not complain. There was not one village where people haven’t come up to me after the meeting and said, ‘Oh, Brian, I’d hate to mention this to the manager, but I’ll just talk to you.’”
At present, any issues do not affect a huge number of people. The total village population numbered just 51,000 in August. But, according to figures from the Retirement Villages Association of New Zealand, between now and 2043, the number of people aged 75 and over will almost double. Demand is growing, and so, too, will any problems in the way villages are organised unless steps are taken to address them.
In general, the villages work like this: someone buying into one pays an upfront amount to live in an apartment. They don’t buy the apartment, but an “occupation right agreement” – rather like when you buy a cemetery plot in advance, giving you a “licence” to occupy it (eventually) even though you don’t own the land. When residents move on – one way or another – they or their heirs receive back their initial sum but no interest or capital gain, and minus a deferred management fee covering various costs, such as those for communal amenities, incurred during their tenure. The industry standard for this is 30%, though the percentage can vary widely from company to company.
So, too, can the time the company takes to repay it. In many cases, you get your money only when your apartment is transferred to the next person and the village uses the money from that to pay you out. If you need that money to move somewhere else for family reasons, or to move to a higher level of care for health reasons, you just have to wait. This buyback period is like a long settlement agreement in a property purchase, except in this case only the buyer gets to choose the term and the vendor has no say.
Critics point out that the arrangement provides operators with substantial capital to fund new projects – in effect, an interest-free loan from their residents.
According to financial commentator Janine Starks, 23% of units remain unsold after six months and 5% are unsold after a year.
The Retirement Village Residents Association would quite like some mandates. It would like a mandatory maximum period of 28 days for the buyback. The Retirement Villages Association, representing operators, thinks that’s an awful idea because smaller businesses simply could not afford it.
Perhaps this is not an industry that suits smaller operators? If they can’t afford to pay back their residents when the time comes, maybe they should not be in the retirement village industry. There are many businesses in which small operators cannot survive because of unavoidable financial challenges, so do not attempt to.
‘Not an investment’
According to Stuff, in May last year the national average asking price for retirement village apartments was $699,900, up from $521,350 the previous year. Not many property markets around the country recorded a 34% increase between 2022 and 2023. In January, the average national house price was $924,000 – so, although an occupation right agreement (ORA) for an apartment is cheaper, they still cost 75% as much as a house. For that sort of price on the real estate market you would expect a decent return on your six-figure investment over several years. But any capital gains connected to your village apartment are retained by the owner.
In practice, the retirement village industry functions like a real estate market without many of the benefits for investors or many of the constraints that regulate that market. Buyers beware. Putting your money into a retirement village apartment is one of the few investments you can make where a loss will be 100% guaranteed.
Except it’s not seen as an investment. “We’re saying to people that when you move into a retirement village, it’s not an investment, it’s a cost,” says Tristan Fluerty, retirement villages specialist at the Retirement Commission, which takes a keen interest in the sector.
“It’s a lifestyle choice. You’ve got to make sure you’ve got enough finances to really make the most of living there and also to be able to do other things, like help your grandchildren by paying for their piano lessons or go overseas. And you’ve got to think into the future about moving into a rest home and if you’ve got enough money for that.”
Of course it’s not an investment, say the operators. You get a well-maintained roof over your head plus all the services, security and benefits of community living – they get the handsome capital gains.
Village apartments are bought and sold by people who have not had to fulfil the licensing requirement of a real estate agent. These agents would very much like to be involved in the sale and purchase of retirement village units. But the operators, in their submission to the ministry’s discussion paper, did not support any requirement to use real estate agents for all ORA sales or the addition of principles from the Real Estate Agents Act into the Retirement Village Act, believing “existing protections for sale of ORAs are extensive and sufficient”.
Prospective residents are required by law to seek independent legal advice before signing agreements. But it’s possible that elderly and sometimes anxious people may not pay as much attention to this as they should.
Despite the financial anomalies, the non-return on your investment does not figure among the top complaints residents have. The most common gripes include charging residents for maintenance of chattels they don’t own; a dispute resolution system whose independence is questionable; fees being charged after a unit has been vacated, and the indefinite buyback period.
The Retirement Villages Association is not keen on anything mandatory, noting that the current system lets any operator alter its terms as it wishes, and many have done so in residents’ favour in the face of criticisms. Although the big players – the “Big Six” are Ryman Healthcare, Metlifecare, Summerset Group, Bupa, Oceania Healthcare and Arvida Group – benefit from this concern for the smaller fry, a few small operators would find this prohibitively expensive.
“While we acknowledge that the business model requires the money from the incoming residents be used to pay the outgoing resident, we acknowledge that operators should share the pain and pay the outgoing resident interest on the outstanding capital sum after nine months,” says the association’s executive director, John Collyns. “We think that’s a reasonable approach to meeting the concerns.”
They could, of course, choose to absorb the pain rather than share it around. As noted, it is available to them unilaterally to shorten the buyback period, and, in the case of fees, says Collyns, “we’ve said to our members essentially that if you can afford to stop charging the fees, do so and do so now. But in some cases, particularly smaller villages, the fees are an important component of meeting the ongoing costs after the unit is vacated. It’s difficult for them.”
Rental barrier
All the issues discussed so far are current, but a potentially bigger one looms larger in the years to come. “Increasingly, people will still have mortgages on their homes or be renting when they reach retirement age and may not be able to afford a capital sum to buy into a retirement village,” noted the ministry’s discussion paper. “We want to ensure that future cohorts of older New Zealanders can access a range of housing that meet their needs.”
Lifelong renters are picked to grow considerably and quickly as a percentage of the general population. The percentage of people living in rental houses increased from 26.2% to 34% between 1991 and 2020, The Spinoff reported. Renters are less likely to acquire the capital you get if your house has been increasing in value, so would probably be able to move into a retirement village only if it was also on a rental system.
Villages aren’t keen – they would rather get your several hundred thousand up front than your promise of regular rent payments. “Some villages offer that option, but they are usually the not-for-profits,” says the Retirement Commission’s Fluerty.
How will a village cater for people who’ve never built up the capital from owning their own home? “That’s a very, very good question,” says Collyns. “I’ve spent a lot of time talking to members about the importance of building rentals. And there are a number of operators who are doing exactly that.
“I’ve asked them, ‘What is your attitude towards rentals?’ A sizeable minority acknowledged that, yes, there was an issue. They acknowledged that they probably would be looking at it quite closely. Another sizable minority said, ‘Well, yes, we know it’s a problem.’ We’ll watch what they’re doing, see how it goes, before we act. But it is something that is in operators’ minds, and we know that the changing demographic means we do have to address these issues. At the end of the day, the industry is not in the business of building social housing per se.”
Current turmoil
The retirement village sector is currently in some turmoil. Ryman Healthcare, which has 38 villages in Aotearoa and paused development on a further five, has downgraded its profit outlook for the year from $300-330 million to $265-285m, citing falling margins and slowing sales at new villages.
Other operators’ construction projects have stopped or stalled, the Commerce Commission is looking into several complaints and a Retirement Village Residents Council – whose function seems to duplicate that of the Retirement Village Residents Association – has been set up. It’s a business in which crises will always be with us.
As will the one fact about the economics of retirement villages that is seldom mentioned but underlies a lot about how they work. It’s arithmetic plus mortality – older people die sooner than younger ones. Turnover is brisk. Operators can count on selling the same apartments over and over at shorter intervals, given the advanced average age of buyers. So the villages stand to recoup their money and return the apartments to the market a lot faster than in an average property transaction.
“The operators perceive us as elderly people, obviously, and that we’re here today and gone tomorrow,” says the residents association’s Brian Peat. “I’m here now as president, and the guys on the executive, but in a few years’ time, we’ll be gone. And unfortunately, that’s the way the operators look at things.”
Show them the money
For some retirement village operators, it’s about being fair.
There is nothing to compel retirement village operators to charge 30% in deferred management fees or to keep all capital gains related to a property to themselves. It’s just that most do. But not all.
“Essentially, our thesis is that the residents deserve to be the ones who get the capital gain,” says Adam Yates, chief executive of Karaka Pines Villages, which has seven facilities around the country, two up and running and five at various stages of completion. “Residents have made the greatest investment in the unit and they deserve the capital gain.” Yates says he and his company changed to this model in 2007.
So, they decided to give up money they were already getting? “Yeah, for sure. We looked at our modelling and realised we were quite capable of making a reasonable gain out of being the creator of the village. I believe in fair and in doing what’s fair. Once all the capital used to create a village is repaid, the village doesn’t owe us anything. So, why should we retain the capital gain?”
Like other operators, Karaka Pines charges a deferred management fee for the services it provides. But against the industry standard of 30%, it charges 12.5% of the resale value. It’s all about fair, again.
And Karaka also has a different way of handling the buyback period within which someone will get the proceeds of their apartment sale. It lets the residents set the price, which effectively gives them responsibility for the length of time it will take.
“The danger is that we would go: we’ll make more money if we sell it for more. And that means we might put too much on it. We let the residents set the price, because they’re the ones who have the most to gain, and also the most to lose if they put it on too high.”
Another variation can be seen in Fletcher Building’s Vivid Living, which has a facility of 48 homes at Red Beach near Auckland. “It really is a village within a broader community,” says the company’s head of retirement, Gemma Gloyne. “Our villages are not heavily gated. They’re situated within broader Fletcher Living developments. We’ve got schools and playgrounds and parks and then a retirement product in the middle.”
Vivid also tweaks the buyback model when residents move on. “If there was a capital gain off the sale,” says Gloyne, “we would use the proceeds of that to share the cost of the refurb [of the apartment] and then we take the net gain post-refurb and split that in half.”
The next level
Generus Living has seven upscale villages in its portfolio. One day several years ago, group executive director Graham Wilkinson saw that the hotel market had fragmented from generic to multiple niche brands. And he foresaw that retirement living would follow the same path. He knew he couldn’t compete with the likes of mass-market Ryman Healthcare, “so I’m gonna find great locations, and build something special, because they can’t compete against me in that space”.
His establishments pride themselves on providing a luxury level of accommodation. One example is The Foundation, situated in Auckland’s Parnell where the city’s blue blood flows thickest. His customers are paying for the extras and experienced staff. “We tend to hire hoteliers.” He promises concierge delivery – trying to anticipate needs at a high level.
“I was in one day, and one of the ladies in the back office said she was off to Countdown to get three lemons and some parsley because she had been asked by a woman who was making a fish pie.”
People pay up to $4 million for an apartment in The Foundation, which has a hydrotherapy pool, boutique cinema, billiards lounge and chauffeured vehicle service.
“The capital cost is high and our reward down the track is related to the capital cost … 30% on, say, $3 million is $900,000. Whereas 30% on $900,000 is $300,000.”
At that level of profit, you can afford to give away a lot of lemons.
Who’s getting the lemons? “We’ve had some pretty fancy people. You couldn’t quote a name, but I can tell you it’s Remuera and Parnell blue blood.”
With its luxe aesthetics – Jura limestone facades, de Gournay wallpapers, and neo-Georgian touches alluding to nearby buildings – residents can’t complain about not knowing where the money went. It’s everywhere.
Perfect Matches
As demand for retirement accommodation increases, so do the number of options available. Newest kid on the retirement-living block is Homeshare, a new initiative by Age Concern Auckland. “It’s about connecting older people with someone who is seeking affordable accommodation and is able to help an older person in their home,” says programme lead Leti Tava. “Age Concern was interested in helping older people to be able to live in their own homes and within their own communities.”
At the time of writing, she had spent months working through the complex issues necessary to make the programme work. “We’re at a stage where we’re implementing and creating the matches between homeowners and home sharers. It’s all about trust-building and reciprocal relationships between the participants”.
The programme is simple. “The homeowner would be the older person living in their own home having the spare bedroom available. There’s an agreement between the homeowner and home sharer that outlines their arrangement and would include what the home sharer will be paying towards their living.
“It’s not like a rental agreement. The sharer will be paying a very low fee, and to make up for that, they will help the homeowner with anything, such as household duties. The biggest part would be the social connection.”
After all, you can pay someone to mow your lawn or clean your house. It’s the companionship that’s harder to come by in old age.
There are, of course, numerous ways in which it could all go terribly wrong for a vulnerable older person. “We do very thorough interviews and assessments with each participant to find out their reasons for joining the programme, what their needs are and what they’re seeking.
“Each participant, including the homeowners, needs to be police referenced. The agreement the owner and the sharer sign is a legal document. It’s very important there is a contribution made to the arrangement as it keeps the homeowner safe from somebody moving in and claiming on their assets.”
Homeshare has had “about 100″ enquiries, 70% of them from the homeowner side. The biggest age group is 85-plus. Would-be sharers are mainly in their 40s and 50s. “So, we’re at a stage where we have a handful of homeowners and sharers who have been matched up but are going through an introduction stage. We haven’t had our first match yet, but we’re very, very close.”