Demystifying retirement village costs
Metlifecare: villages need to be transparent about costs to buyers.
Aretirement village is all about making life easier. For those who’ve chosen to make one their home, it usually does.
When you’re looking to transition to this new stage of life, it can seem daunting, especially when it comes to working out what it’s going to cost.
“There are different fees involved, so it can seem quite complicated,” says Sue Campbell, a regional sales manager for retirement village operator Metlifecare. “It’s important to understand what these costs are in relation to the kind of life you would like to live once you’ve moved in.”
The initial cost to move into a retirement village involves purchasing the Occupation Right Agreement (ORA) for the unit you’ll be living in. This is a contract between the resident and the village operator, which spells out the obligations and responsibilities of each party.
This payment is called the capital sum and it varies depending on things like the size, style and location of the unit and the chosen village. Payment is required in full when you move in.
What’s important to understand is it’s not just the unit you are moving into, it’s also about the amenities and activities on offer, if there are additional care options available, and the overall feeling that the fit is right. These are just some of the things worth considering.
When you leave and your unit is resold, you are refunded the capital sum you paid, minus what’s known as a deferred management fee, or DMF. The amount of DMF charged varies between operators.
“The DMF contributes to the refurbishment of your unit when you leave, plus it also goes towards things like major upgrades in the village such as replacing the bowling green,” Campbell says.
As you have purchased an ORA (contract), you don’t benefit from any capital gain – however neither do you suffer any financial loss. “Some people think a provider can’t encounter capital loss in this business, but they can,” she says. “I’ve seen it happen during the 12 years I’ve been in the industry. It’s not common but it can occur.
“Remember most people who buy into our villages need to sell their home to do this and we all know how the real estate market fluctuates with rises and falls.”
For some people, the deduction in what money is returned to them can be challenging to accept, says Campbell, but most residents understand that’s just how the retirement village industry model works and what they are purchasing is not just accommodation but a lifestyle choice. Some consider this to be an investment in their future wellbeing.
“Yes, we are a business and we do need to make a profit. However, as a responsible business owner with a strong people focus, we regularly use some of our profits to enhance our residents’ village environments.”
Any incoming resident will be able to have a very clear understanding of what their financial position will be upon their departure from the village. Metlifecare has a maximum DMF of 30 per cent, which accrues at 10% per year for the first three years of occupation.
“…as a responsible business owner with a strong people focus, we regularly use some of our profits to enhance our residents’ village environments.”
As an example, if you pay $650,000 as a capital sum for your villa, the balance repaid would be $455,000 less any other amounts owing after three or more years – that’s the original amount minus 30 per cent, says Campbell.
Another payment for residents to be aware of is the weekly village fee. This fee covers a variety of costs associated with living in a village and contributes to things like council rates, water, facility maintenance and gardening. Residents are still responsible for bills such as power, phone, and personal contents insurance.
“This weekly fee does increase annually. However, it’s a relatively small increase in line with the consumer price index (CPI).”
Campbell says village fees are often less expensive than comparable outgoings if people were still living in their own homes: “For example, one of the villages in my area has fees of about $8000 a year. If you’re in your own home in that region, the average rates are $5200 a year, then on top of that you’re also paying for your home insurance, water, maintenance, and repairs to your house.
“That all adds up, so $8000 is attractive by comparison. It’s also useful to know the exact outgoings you’re going to have each year.”
Residents have peace of mind knowing that not only will the maintenance of their home in the village be taken care of, but they’re not liable when operator-owned chattels like the hot water cylinder or oven need replacing (excluding wilful damage), or if the property is damaged due to a weather event.
“We had a tornado unfortunately rip through one of our villages, no one was hurt but one of the units lost about a quarter of the roof,” says Campbell. “We had people on site an hour later to remedy the immediate dangers – and because we’re a large operator, we have trusted relationships with tradespeople so we can access help quickly. Our resident didn’t have to worry about organising any of that or paying for it – it was totally up to us.”
Seeking the appropriate financial advice before making the move into a village is a good idea, she says; potential buyers need to ensure the move is affordable so that they will be able to enjoy the lifestyle they have in mind.
“Looking into the various villages and their offerings is time well spent. On paper, the village operators can all look the same, but there can be differences within the various operating models – like what is included in the purchase of the ORA…for example, the chattels listed or how additional services are accessed.
“This is normally a person’s final choice of housing, so investing the time into making the right decision is critical and time well spent.”
To make things easier for prospective residents, Metlifecare has produced a guide called Money Matters, which explains the financial side of moving into independent living or serviced apartments at its villages.
Sue Campbell, Regional sales manager