Saturday, 26 May 2018

Retirement Village Financial Pain

The retirement village financial pain shows clearly in this table prepared by www.retvill.net , especially when it is compared to a standard residential tenancy.

In the table below four different retirement village payment models are examined and compared. All are measured by the loss of capital value over the period of the occupancy.

It must be noted that retirement villages generally offer recreational and social facilities to their residents together with conditional security of tenure. These are not generally available with a standard residential tenancy within the community. What is striking in the analysis however is the cost of this over and above the market driven cost of a residential tenancy generally.

All retirement village examples have the common parameters of an $800,000.00 entry cost with a Deferred Management Fee rate of 36% drawn over the first four years of occupancy, devaluation of the refundable amount (entry price minus the DMF and held by the operator until departure) at a cpi rate of 2.5%paa maintenance charge of $150.00 per week at in-going with an annual cpi increase of 2.5%pa, a unit refurbishment charge of $50,000.00 at in-going with an annual cpi increase of 2.5%pa.

Retirement village maintenance fees, devaluation of the refundable amount over the period of the occupancy and refurbishment costs are including in the analysis. The retirement village resident does not gain ownership of the property, only a lease or licence to occupy. The most direct comparison to this style of retiree accommodation in relation to overall financial impact is a standard residential tenancy within the general community.

The five different retiree accommodation models are:-
  • Residential Tenancy - Rental return to landlord 5% with a 2.5%pa capital gain. 3%pa investment return to tenant on their retained $800,000.00.                       
  • Retirement village residents
  • RED - Deferred Management Fee calculated on the ENTRY price. 100% of the capital gain to the RESIDENT.                                                                                        
  • GREEN - Deferred Management Fee calculated on the EXIT price. 100% of the capital gain to the RESIDENT.                                              
  • YELLOW - Deferred Management Fee calculated on the ENTRY price. 100% of the capital gain to the OPERATOR.                                        
  • BLUE - Deferred Management Fee calculated on the EXIT price. 100% of the capital gain to the OPERATOR.                                                

At the SEVEN (7) year occupancy mark (industry average period of a retirement village occupancy) the capital value of the retiree has fallen from $800,000.00 to:-
  • Residential Tenancy - $682,002.00 - A loss of 26%.     
  • Retirement village residents
  • RED - $428,628.00 - A loss of 55%. 
  • GREEN - $383,797.00 - A loss of 60%.
  • YELLOW - $304,096.00 - A loss of 62%.
  • BLUE - $259,264.00 - A loss of 73%.

At the FIFTEEN (15) year occupancy mark (industry average period of a retirement village occupancy) the capital value of the retiree has fallen from $800,000.00 to:-
  • Residential Tenancy - $529,097.00 - A loss of 53%.     
  • Retirement village residents
  • RED - $331,865.00 - A loss of 71%.
  • GREEN - $251,171.00 - A loss of 78%.
  • YELLOW - $107,716.00 - A loss of 87%.
  • BLUE - $ 27,022.00 - A loss of 98%.

At the TWENTY FIVE (25) year occupancy mark (industry average period of a retirement village occupancy) the capital value of the retiree has fallen from $800,000.00 to:-
  • Residential Tenancy - $308,712.00 - A loss of 79%.     
  • Retirement village residents
  • RED  - $  89,055.00 - A loss of 94%.
  • GREEN - $      0.00 - A loss of 100%.
  • YELLOW - $-167,128.00 - A loss of 121%.
  • BLUE - $-259,354.00 - A loss of 117%.
Table.



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