They are marketed as the optimum lifestyle choice for recent retirees, often in ideal locations with all the facilities for a stress-free lifestyle. But with inconsistent regulation and harsh fee structures, retirement village living should be approached with caution.
Before becoming emotionally attached, think about how long you'll be able to enjoy all the lifestyle options and whether you can afford it.
Affordability is particularly relevant because operators build the cost of living in a village into the contract, with recurrent charges and the cost when it comes time to sell.
Any confusion about what you are buying is complicated by the fact retirement villages are regulated by each state and territory. It makes reading and understanding any retirement village contract – which may be 80 pages - an absolute must.
A distressing scenario emerging is people who are confused between retirement villages – which essentially offer independent living – and residential aged care.
Situations where people have sold the family home to buy into a retirement village late in life and signed contracts where they pay high monthly maintenance fees for facilities they rarely use because of their age or ailing health, are not uncommon.
Depending on the contract they could then have to pay one third of their ingoing contribution in deferred management fees when they move out, leaving them well short of the amount needed to pay the Refundable Accommodation Deposit being asked by the aged care operator.
Council on the Ageing housing specialist Luke Coniston says it is increasingly common to see people in their 70s and above who believe they have to live in a retirement village to transition into an aged care facility, or that being in a retirement village will guarantee them a bed in an aged care facility.
"Retirement villages and aged care facilities operate under completely different legislation and cost structures, with aged care facilities being far more closely regulated by the Commonwealth," says Coniston.
Recurrent charges paid monthly by the residents are used by the operators for ongoing general repairs and maintenance of the units, common areas and community facilities, plus administration costs of the village. Some operators try to charge residents for major infrastructure repairs and replacement of capital items such as air conditioners, hot water systems, and white goods.
Scrutinising the annual budget presented by the operator is another must.
There are three main contract and finance models used by the country's estimated 2000 retirement villages: outright ownership, which gives the unit owner a title over the unit; the loan licence model, where the bulk of the ingoing contribution is set up as a loan to a village operator in return for a licence to occupy the unit; and the leasehold or sublease model.
In each case there is an ingoing contribution often similar to the cost of buying the unit. There is generally some form of departure fee based on the length of time someone lives in the unit. Operators also charge weekly, fortnightly or monthly fees, called recurrent charges, that cover the day-to-day operating costs of the village and may or may not include rates, water, electricity, maintenance of common areas and staffing costs.
Depending on the legal structure, residents may or may not share in any capital gain in the value of the unit when they leave the property. Whether a resident has to contribute towards the refurbishment of their unit before it is sold can depend on where they live and when they entered their village.
Except for unit title models, a person's name is not generally on the title of the unit and they rely on the contract and the relevant legislation to give them security of tenure if the village is sold or the operator goes bust.
It is the departure or exit fee payment, unique to the retirement village sector, that causes most grief.
The calculation is commonly a percentage paid per year of residency, and is usually capped somewhere between 30 and 38 per cent. The cap is generally reached after 10 years but it can be reached after five years. Some villages charge indefinitely.
According to the Retirement Living Council, the departure fee helps to compensate the village owner for the cost of building the village and allows the resident to part-pay for this at the end of their residency rather than the start.
It can also be designed to give prospective residents a choice of whether they pay a full market price for the unit when they move in or defer some of the payment until they leave.
Jo Twible, a principal of KJB Law and one of the ACT Law Society's representatives on the ACT Government's Retirement Village Advisory Group, says entry to a retirement village is more complex than buying or selling a regular property such as a house and it's important for prospective residents to be aware of their rights and obligations under the village contracts.
Twible says the value from retirement village living can come from the benefits people get from living within a village community.
"For most people entering a retirement village the primary consideration is lifestyle choice and they see the value in making that choice," says Twible.
Eyes wide open
When Pamela Graudenz, 79, bought into her retirement village unit in Canberra's northern suburbs almost 20 years ago, she did so knowing how much money she would get back if and when she moved out.
In return for an upfront payment and an ongoing monthly maintenance fee under a loan licence agreement, Graudenz has enjoyed a quiet unit in a low key environment run by an efficient not-for-profit operator.
If something breaks down, such as the hot water system, she has someone to call and it is either fixed or replaced almost immediately. The gardens are maintained and she feels safe.
"It suited my circumstances at the time and I continue to be very happy here," she says.
Graudenz, who is also the vice president of the ACT Retirement Village Residents Association, says people regularly move into villages without fully understanding the contracts and the costs involved.
"People are often moving in stressed and too easily signing documents," she says. "They have just sold their home and are attracted to the idea of the lifestyle or not having to worry about the repairs and maintenance of a house, but then they don't understand the finer details of how retirement villages run and the potential costs when they are there."
Most villages will have a residents committee which should be willing to answer prospective resident queries. But be wary of the residents committee where the village operator is always in attendance, says Graudenz.
This article was originally published by The Age on 23 November 2016. It represents the views of the author only and does not necessarily reflect the views of AMP. Bina Brown is a director of aged care placement company Third Age Matters.
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