There are major changes sweeping the retirement living industry in response to the desires of affluent and aspirational downsizers.
These industry changes reflect the fact that a new breed of downsizers have, over the past two decades, enjoyed financial autonomy and stability through relentless increases in the value of their family home, and any investment properties.
Many of these downsizers want to continue to enjoy this autonomy in their retirement property, which includes wanting to have their name on the title, keeping all the capital gain and maximising the property’s sale price through the expertise provided by an agent.
Stockland’s Aspire range
Major developer Stockland was the first to acknowledge this change in February this year when it launched its Aspire range of seniors living projects, which seek to directly compete with the traditional retirement village model.
Under the Aspire model, homes are generally available under community title which allows them to be bought and sold on the open market.
This land title arrangement means that, unlike the situation in just over 50 per cent of retirement villages in Australia, the owner does not lose a portion of the property’s capital gain through fees paid to the retirement village operator.
To date, two Aspire villages have been announced – one in NSW and the other in Western Australia – but Stockland is looking at expanding the concept across parts of Australia.
The only catch is that with these properties is, as a condition of the project’s planning approval, they must be occupied by a person or people aged more than 55.
Stockland’s WA Regional Manager for Retirement Living David Allington said the Aspire concept was designed to meet the needs of the modern-day retiree.
“Aspire was created for customers who want to downsize from the big family home but are seeking an alternative to moving into an apartment or a traditional retirement living village, allowing them to own the title of their homes, keep all capital gains and sell with complete flexibility,” he said.
These seniors living projects can be easily sold on the open market by an agent, given the traditional land titling arrangement.
Retirement village changes
What’s in the cross-hairs here is the decades-old model of retirement villages charging a deferred management fee – also known as an “exit fee”. This fee is charged when someone exits a retirement village and is designed to reduce upfront costs to enter the village.
According to the Property Council Retirement Living Census, in 59 per cent of cases this fee is calculated as a percentage of the capital gain of the property. What’s more, many retirement villages don’t give you full title of the property, but instead give you a licence to occupy the property.
Further underling the change sweeping the industry, Lendlease has stated it will soon announce a choice of four financial models at 15 of its 71 retirement villages, with plans to extend them across the board after market feedback.
Lendlease will still offer its existing contract, whereby a person buys a unit then pays a deferred management fee at the end. The three new options include a pre-paid plan, a refundable contribution and a pay-as-you-go model.
Under the pre-paid plan, the resident would pay the management fee up front and retain the full capital gain or loss on the property.
A number of other operators have been giving these types of options for years, or even decades. For instance, as reported by aged care expert Rachel Lane in a column for Fairfax Media, Churches of Christ Care offers five payment options across its 23 villages across Queensland and Victoria, while Uniting offers four payment options across its 80 retirement villages in NSW. You can search for some of these villages on SeniorsHousingOnline.
Importantly, legislation is now in place in most States which means that retirement village residents have the right to choose their own real estate agent when they sell their dwelling. Up until around five years ago, this often wasn’t the case.
This means agents should also be able to benefit from the trend towards retirement village residents wanting to maximise their capital gain.
Meanwhile, the Australian Government has tapped into the growing aspirational downsizer sentiment by offering superannuation incentives to downsizers, which kicked in from 1 July 2018.
These incentives allow downsizers aged over 65 to put the equity gain from selling the family home, and downsizing into a smaller property, into their superannuation.
According to the government, this incentive is a housing affordability measure because it encourages retirees to leave the family home and therefore makes these homes more accessible to young and growing families.
The traditional retirement village model will undoubtedly have a dominant place in the retirement living industry for decades to come.
It’s easy to see why this model has been so popular for so long, given it offers a range of benefits including a lower price entry point, the potential to avoid stamp duty, guaranteed property buy-backs and usually a great range of indoor and outdoor communal facilities.
However, what is also certain is that new options are coming on to the market - both within and outside the retirement village industry – in response to a growing band of aspirational cashed-up downsizers.
These changes are happening at the same time as a dramatic increase in Australia’s population of seniors and retirees.
For instance, Australia’s median age is projected to increase from 37.3 years in 30 June 2012 to between 38.6 years and 40.5 years in 2031, and then to between 41.0 years and 44.5 years in 2061. This means Australia’s average age is starting to creep towards 50 – when people traditionally start thinking about a retirement property.
Amanda Graham is the Co-Founder and Co-CEO of Downsizing.com.au and Seniors Housing Online, Australia’s dedicated real estate listings website for downsizing-friendly properties.