Successful retirement could hinge on choosing the best village option
With 710,000 Australians intending to retire in the next five years and driving demand for senior accommodation, determining which retirement village model works best for you has never been more important.
There has been considerable speculation in recent years as to which retirement accommodation model is best for retirees.
The deferred management fee (DMF) model is common among with retirement villages, and the land lease model is also used in over 55s land lease communities.
Both have their pros and cons but before divulging the financial differences, it is critical to first understand how the models differ in terms of legislation, security and risk.
Chanel Slijderink, Development Manager for the Abadi Gaia Adult Residential Village is an expert in the field.
“Retirement villages operate under the respective states’ Retirement Villages Act, specifically set up to protect the rights and interest of those entering a village.
“Whether this be for high care or over 55s, the act is the same.”
The types of protections and benefits in place include stipulations and provisions such as:
- general service charges and maintenance reserve fund charges can only cover the cost and are not to profit
- extended cooling off periods
- extensive security over tenure for land and property via freehold or registered lease
- contractual transparency for residents
- exclusive legislation for retirees.
Land lease communities operate under the states’ various Manufactured Home Tenancy Park Acts, which designed for just that, manufactured home parks.
Some acts have recently been amended to further support and protect those entering a manufactured home park estate.
The types of provisions, protections and benefits in place are:
- increases in land lease being capped at 3.5 per cent or the inflation rate, whichever is greater
- the potential to get rent assistance
- ability to generally move in with short notice
- requirement for simple contracts.
When comparing the two models, they can be described as protective or simple.
Although retirement village contracts may appear complex and burdening, they provide all the necessary information, charges, and rates which residents must know to make an informed decision. Land lease contracts may be simpler but that does not necessarily translate into better.
“They may leave more questions unanswered,” Miss Slijderink said.
“This was proven during the pandemic, with residents having ground rents hiked astronomically as there were not sufficient protective measures in place for residents at the time.”
Miss Slijderink emphasised that modelling the financials can be difficult, as all accommodation types have their differences, although if broken down with simple averages, they are relatively similar.
| DMF model | Land lease model | |
|---|---|---|
| Purchase price | $450,000 | $450,000 |
| Weekly fees | $180 | $250 |
| Annual increase in fees and capital values | 3.5% | 3.5% |
| Total fees over 20 years | $273,962 | $380,503 |
| Exit fee | $135,000 | $0 |
| Remainder after sales | $760,404 | $895,500 |
| Net over 20 years | $509,000 | $515,000 |
“Land lease and retirement village costs and benefits change depending on the village, though let’s assume $450,000 entry price, with 3.5 per cent annual increase in ground rents, weekly fees and capital values.
When factoring in that there are no exit fees for land lease, and a 25 per cent exit fee based on the ingoing contribution, the results are only marginally different.
Over a 20-year time frame, the cost difference between the two is only $6,000,” Miss Slijderink said.
Separating the retirement village options
So what is the big difference between the two retirement village models?
According to Miss Slijderink, the fundamental difference is found within the respective village experiences.
“For example, land lease communities tend to have resident run facilities, which requires residents to use the bar and serve themselves, whereas retirement villages tend to include staff to run these facilities in their fees, which ads to a resident experience and provides a true resort lifestyle.
“In addition to the service aspect, higher levels of care are not catered for in land lease communities, meaning as you get older, if you do need any assistance, you need to physically sell, move and start again, which is often not a feasible option.”
“When picking between the two models, the timeframe should be a massive consideration.
“If you are over the age on 60, you need to consider what you will need in 20 years, and whether or not you care needs will actually be met”.
Land Lease communities and retirement villages have both experienced exponential growth in recent years as Australia’s population ages.
The future for both of these models seems assured, though it remains hugely important to ascertain which option is optimal and practically and financially sustainable in the long term.
