Real cost of villages
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 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 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.