Upfront cost only tells a bit of story

is the principal at Conrad Law in Townsville, specialising in business and succession law RECENT media reports have highlighted rorts in the retirement village industry.

While not all operators are as rapacious as the operator mentioned, retirement villages provide an undeniably expensive accommodation option.

As ageing Baby Boomers start looking for more comfortable retirement options, demand for resort style and more traditional retirement villages has increased dramatically.

Competition for those that provide reasonable value is intense.

This attractive lifestyle option comes at a significant cost. Someone has to pay for the manicured gardens, the village facilities, oncall medical help and all those staff. The operator wants to make a profit as well.

Headline charges seem at face value to be reasonable, but there are often four or more levels of charge – which add up to a lot of money over the time you are there.

The upfront price for the unit or house seems pretty reasonable, compared to the price of buying an equivalent property. But, you are not buying a home. You are buying a lease – effectively pre- paying your rent.

Then there are the weekly or monthly service charges. They seem pretty reasonable compared with renting an equivalent property, but they add up quickly.

The real sting comes at the end. Operators can charge 35 per cent to 40 per cent of the initial purchase price as an exit fee or “deferred management fee”. This is where they really make their profit, so for unscrupulous operators there is a temptation to find ways to make residents leave early. There can also be renovation charges to get the unit ready for sale and transaction and other exit fees.

We undertook an analysis recently that showed that the weekly average cost for a resident who left after two years would be approximately four times the cost of renting a similar property. Retirement village accommodation can provide an attractive lifestyle for those willing to pay the cost.

However, legal and financial advice should be obtained to identify the true cost and other risks involved.