| The capital growth of your retirement living unit can | | | | almost one per month. If you assume an average |
| have a big impact on the financial outcome of your | | | | sales period of three months, the complex could |
| investment when you decide to leave. Capital Growth | | | | have up to three units for sale at any time. More |
| or capital gain is the difference between the initial | | | | re-sale competition means downward pressure on |
| purchase price of a unit and the re-sale price when | | | | re-sale prices. |
| the resident vacates. For example, if the unit was | | | | If you do choose to live in a large complex, try and |
| purchased for $100,000 and re-sold five years later | | | | select a unit that has a point of difference to help |
| for $150,000, the capital gain is $50,000. | | | | you stand out from the crowd. This could be a larger |
| So what influences capital growth? Capital growth in | | | | plot size, additional bedroom, better views, |
| retirement communities typically mirrors those of the | | | | air-conditioning or more car parking. |
| residential property sector. For example, the price of | | | | Most retirement villages in Australia sell their units to |
| a two-bedroom unit in a particular retirement | | | | residents under a deferred management fee |
| community would be similar to that of a | | | | contract, which usually includes an agreement to |
| two-bedroom unit of equivalent standard in the | | | | share any capital gains from the re-sale between the |
| surrounding suburbs. Similarly with residential property, | | | | resident and village owner. Typically, the contract will |
| some retirement communities are going to appreciate | | | | state that when a resident vacates the unit and it is |
| in value faster than others because they have better | | | | re-sold, the outgoing resident will pay the accrued |
| features or a superior location. | | | | management fee, which has been deferred until exit, |
| It is reasonable to expect that features which | | | | as well as a share of the capital gains (if any) to the |
| accelerate growth in retirement properties are largely | | | | village owner. |
| similar to those in the residential property sector. This | | | | The capital gains to be shared with the owner can be |
| could be summarised as "well-presented product in a | | | | anything from 100% to none at all. There is no |
| popular location, with easy access to public transport, | | | | industry standard for this, however the generally |
| shops and lifestyle café strips". When | | | | accepted practice seems to be an equal split (50/50) |
| purchasing retirement living properties however, there | | | | between owner and resident. Any capital gain realised |
| are some additional features the buyer must consider | | | | upon re-sale of the unit and payable to the resident |
| if they want to increase their chances of capital | | | | is going to have a positive impact on the overall |
| growth. | | | | financial outcome of the contract for the resident. |
| Location | | | | Therefore potential purchasers of retirement units |
| Location, location, location is important, important, | | | | should negotiate as high a share of the capital gain as |
| important! For your best chance at capital growth, | | | | they can. |
| make sure your chosen complex is well-located near | | | | Deferred management fee and capital gain contracts |
| shops, medical centres and community facilities such | | | | can vary widely between villages and even within |
| as libraries and clubs. It also helps if the area is flat | | | | villages, making it hard to compare "apples with |
| and easily accessed by walking or motorised | | | | apples". At Find My Retirement Home we conduct |
| scooters. Villages located in popular lifestyle areas | | | | detailed modelling of the financial outcomes from |
| such as the beach are also likely to be more popular | | | | each contract, enabling our clients to easily compare |
| and therefore generate a higher re-sale price. | | | | different contract options. Our analysis has shown |
| The Dwelling | | | | that with a standard contract of a 25% deferred |
| All other things being equal, a new house or unit with | | | | management fee over ten years and an equal spit of |
| modern facilities will appreciate faster than an | | | | capital gains between the owner and resident, a unit |
| older-style property. Retirement living product in | | | | would need to grow at around 8% per year |
| Australia is dominated by brick veneer and roof tile | | | | (Historical compounding capital growth per year for |
| on slab construction. Instead, look for a point of | | | | residential property over the past 15 years in |
| difference in the construction of your preferred | | | | Australia has averaged approximately 8% per year) |
| village, such as architectural features, superior fittings | | | | for the resident to "break even" after eight years. |
| and contemporary design. | | | | Put simply, after eight years under this style of |
| Retirement houses or units most in demand feature | | | | contract, a resident should be able to exit the village |
| single level living with no stairs, good security, | | | | and re-coup all of their original purchase price, weekly |
| air-conditioning or heating (depending on your | | | | village fees and all other costs. An exit after year |
| location), emergency call facilities, larger doorways for | | | | eight and the resident could well make a profit from |
| wheelchair access and on-site management. | | | | the transaction. |
| Village Size | | | | In summary, if you are considering the purchase of a |
| The ideal size for a retirement living community is a | | | | retirement living unit under a deferred management |
| complex argument! Large communities are able to | | | | fee contract: |
| offer more facilities such as swimming pools, bowling | | | | 1. Choose a property with good capital growth |
| greens and clubhouses, which can make the complex | | | | prospects; |
| more attractive to buyers. Weekly fees may also be | | | | 2. Negotiate as high a proportion of the capital gain |
| lower due to the larger number of contributors. | | | | upon re-sale that you can; and |
| However, more units mean more competition for | | | | 3. Intend to stay in residence for at least eight years. |
| buyers when it comes time to re-sell your unit. As a | | | | If you can successfully address these three areas, it |
| rule of thumb, assume that ten percent of the units | | | | is highly likely you will exit your investment in a |
| are re-sold each year. In a complex of 100 units, this | | | | financially neutral position at worst, or a profit at |
| means that 10 units would be re-sold every year, at | | | | best. |