The real cost of re­tire­ment vil­lages

Auckland City Harbour News - - OPINION -

Old age comes to us all.

Some choose not to face their old home.

In­stead they choose to buy their way into a re­tire­ment vil­lage, of­ten prompted by the death or ill­health of their part­ner.

Most re­tire­ment vil­lages op­er­ate on the model of older people buy­ing a ‘‘li­cence to oc­cupy’’, or ‘‘oc­cu­pa­tion right agree­ment’’ (ORA) in re­turn for the right to oc­cupy a unit, villa or flat in the re­tire­ment vil­lage.

Fi­nan­cially, this is a big in­vest­ment.

The pros of the ar­range­ment are pretty straight­for­ward.

Re­tire­ment vil­lages bring com­pany.

They are ef­fec­tively re­sorts for older people so lone­li­ness ceases to be a prob­lem.

There are shared ac­tiv­i­ties like fit­ness classes and shared fa­cil­i­ties, like pools, bowl­ing greens, li­braries and restaurants.

Re­tire­ment vil­lages are safe places, be­hind gates, with se­cu­rity and grounds to stroll.

Some have nice in­ter­nal plazas to walk so res­i­dents can stretch their legs feel­ing safe at any time of the day or night.

Main­te­nance is taken care of and for the frail there’s help at hand in case of emer­gency.

As many have nurs­ing fa­cil­i­ties on­site, they can be the last place a per­son will ever live.

There’s only one con and it is a big­gie: The cost. Think of cost on five lev­els. First there is the cost of buy­ing

it in your way in. The cost of ORAs is set at what­ever level the re­tire­ment home op­er­a­tor thinks they can get away with.

It is based on the sales prices of houses in the im­me­di­ate area of the vil­lage.

Most people shop lo­cally and most use the pro­ceeds of their house sales to buy their li­cence to oc­cupy.

This money will be paid back to res­i­dents, or their es­tates, once the ORA is on-sold when they leave or die.

The vil­lage mar­kets it and you, the res­i­dent/es­tate, has to wait for the money, most likely not get­ting any in­ter­est on it.

The sec­ond level of cost is that the vil­lage will sub­tract a ‘‘de­ferred main­te­nance fee’’ from the sum paid.

Say you paid $500,000 eight years ago and the de­ferred main­te­nance fee is 30 per cent.

Not only will you get back just $350,000 but in­fla­tion will have re­duced the value of each of those dol­lars.

Also, if the vil­lage can only re­sell it for $400,000, then the res­i­dent/es­tate may well have to also foot the bill for the ‘‘cap­i­tal loss’’.

The third level of cost is the weekly fee res­i­dents pay to cover rates, in­sur­ance, main­te­nance and the like.

Con­sumer es­ti­mated the aver­age last year to be around $124 a week.

Ac­tu­ally, that can be a ‘‘sav­ing’’ on the cost of stay­ing at home.

The fourth is that there are al­ways things to pay for di­rectly, like par­tic­i­pa­tion in ac­tiv­i­ties, meals in the restaurants and so on.

The fifth level of fees, and the one that many men who moved into re­tire­ment vil­lages too early have be­moaned in re­cent years, is the op­por­tu­nity cost of hav­ing sold their homes to buy ORAs a few years back.

They rue the cap­i­tal gains they would have got from still own­ing their own home.

Be­cause a per­son can’t take their money with them when they go, it is ar­guable that the only fi­nan­cial loser is the es­tate of the el­der who opted for re­tire­ment vil­lage liv­ing.

But that per­haps is the price their fam­i­lies pay for leav­ing their el­der feel­ing iso­lated and un­able to cope.

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