Tuesday, 24 July 2018

Danger For Retirement Village Residents

A flattening or flat property market spells danger for many retirement village residents. Many retirees are dependent on capital gain in the value of the village unit they occupancy to offset the reducing value of their initial capital amount.

Monthly fees, inflation and the deferred management fee all work to reduce the capital value held initially by the resident. Capital gain is their only defence.

The following table shows that occupancy in villages where the operator grants capital gains to the residents can gain significant defence if not advancement on their initial capital expenditure.

However the area highlighted in red shows that where there is no capital gain between entering and exiting the village, the reduction in the refundable amount can be dramatic in comparison to those with more historic capital gain rates.

The ability of the resident to fund their own aged care placement can suffer badly over time from this outcome.

In a flat or flattening property market a retirement village contract that offers capital gain to the resident may afford no protection from the ongoing fees and inflationary impact over time on their initial refundable amount.

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