Village operator promises capital gain
A Tauranga firm is shaking up the traditional retirement village model.
Retirement villages where residents get to keep most of the capital gain are being developed by a new company throwing down the gauntlet to the big players.
Karaka Pines Villages, based in Tauranga, is planning and building two villages, one at Drury and one in Rototuna in Hamilton, where part of the deal is that residents keep the capital gain on the property when it is sold, less a 12.5 per cent facilities fee (also known as a deferred management fee) and refurbishment costs.
By contrast, most large retirement village operators pay residents when they leave or die, or their estates, the price they bought the unit for, less a 20 per cent to 30 per cent deferred management fee and refurbishment costs.
It has long been the subject of criticism, particularly as property prices around the country have climbed in the past several years.
Karaka Pines’ ‘‘next generation’’ model, as it is being marketed, has been developed by chief executive Adam Yates, who said it was a lot fairer than the present model where the capital gain goes to retirement village operators.
Yates, with more than 20 years in the retirement sector, said they recognised that the motivation to move into a retirement village was partly an older person’s anxiety about their retirement years.
He had earlier developed for his previous employer, Manor Group in Tauranga, an ‘‘own your own’’ model where residents effectively owned the retirement village. A trustee was appointed to manage residents’ interests, and residents kept 100 per cent of the capital gain.
His ‘‘next generation’’ model offered more services to residents and charged a 12.5 per cent facilities fee (a deferred management fee) on the sale price of the unit.
The key test of the model was that residents were happy to pay the 12.5 per cent in exchange for quality living and services in the retirement village, Yates said.
Residents bought a licence to occupy the units, like in most retirement villages.
Karaka Pines would manage the village, look after properties and gardens, and provide activities and ‘‘pastoral care’’, which meant making sure residents were well and looking after themselves.
Yates said the aim was to offer retirement villages that reflected what people expected without it being very expensive.
He was not setting out to build a large company, but their way would help to free residents from the financial burden of retirement.
Generally, people buying their ‘‘villas’’ were younger than those going to traditional operators.
‘‘I think people move into villages too late, as it is, to get the benefits,’’ Yates said.
A lot of people put off going into a retirement village because they knew they would lose a lot of value by not getting the capital gain.
The company was developing a 309-unit village, Karaka Lifestyle Estate, at the Auranga housing development in Drury, South Auckland, and recently held an open day, selling about 30 units off the plans. That development would offer healthcare services.
It was also seeking resource consent for a 140-unit development in Rototuna, north Hamilton, which would not have healthcare services but was opposite a Radius aged-care facility that did.
Yates said the model was viable business model.
Karaka Pines sought investors, capable of investing at least $750,000, for each village development. Investors would own the village and Karaka Pines would develop and manage it for them.
‘‘You can make a return that investors are happy with without taking the capital gain,’’ he said.
The profit was made through a development margin when the village was built, as well as from the facilities fees.
Karaka Pines had also developed three ‘‘own your own’’ retirement villages for Manor Group where residents are entitled to 100 per cent of the capital gains.
aOne of those, Woodcroft Estate, is being built south of Christchurch at Rolleston, and will have 78 two- and three-bedroom units priced from $450,000, according to their newspaper advertisement.
The two others are the 54-unit Kempton Park at Bethlehem in Tauranga, and the Roseland Park village in Hamilton, soon to be completed.
Yates said ‘‘own your own’’ was ending and Woodcroft was the last to be built on those terms.
Retirement Village Residents Association president Colin Porter said retirement village operators had made a fortune from the increase in property values in the past 10 years, but he doubted that would continue.
Residents being able to keeping all or most of the capital gain was a great drawcard and good, he said. But residents should also look into other issues such as how the trust would be administered (for the ‘‘own your own’’ villages).
Getting legal advice was essential. The detail was in the occupation right agreement.
Retirement Villages Association president Graham Wilkinson said the capital gain had become more of an issue with the rising value of property.
But 90 per cent of older people choosing a retirement village – about 40,000 people – did so for the bundle of services provided, especially access to healthcare.
For a certain section of older people the capital gain would be a drawcard, he said.
‘‘I think people move into villages too late, as it is, to get the benefits.’’
Karaka Pines Villages CEO Adam Yates, above