First up, buying into an ‘over 55s community’, as they’re commonly called, should not be regarded as an investment decision. Retirement communities are not necessarily a cheaper way to live in your advancing years and there are many lifestyle factors that also weigh into the equation.

Currently, around 250,000 Australians live in retirement communities, with the Property Council of Australia forecasting around 7.5% of the over-65 population will be in retirement housing by 2025. Given the over-65 population is expected to increase by 50% in the next 15 years, the sector is rapidly growing.

Buying into a retirement village is not the same as buying a private home or an investment property. At the end of a tenure, buyers -- or their benefactors -- will almost always get less for their homes than what they paid for them.

So-called ‘exit fees’ vary widely with some being up to 40% of the home’s original value. In addition, ongoing monthly fees to live in the community can be expensive.

What to consider before buying into a retirement community

The decision to whether to buy into a retirement village is entirely individual and cannot be based on money alone.

All states and territories have basic consumer protection laws covering retirement communities which operators must comply with. These include rules around operators providing plain English contract disclosure statements and built-in cooling-off periods if purchasers change their minds.

Advocacy group National Seniors Australia warns the sector is still very much a case of “buyer beware”.

The organisation has long been lobbying the federal government to step in and standardise laws governing retirement communities nationally.

In the meantime, it urges prospective buyers to seek independent financial and legal advice before considering any moves into retirement community living.

"The cost of good legal advice may be thousands of dollars.

Some solicitors do charge up to $5,000, and older people often decide against getting this advice because of the cost. But not doing so also could come at a very dear cost, much more than the legal advice" - National Seniors Australia.

That said, the organisation agrees the sector has a role to play in the housing mix for older Australians.

Let’s take a look at some of the factors to consider.

Pros of retirement communities

Housing affordability

The retirement housing industry’s peak body, the Retirement Living Council, says the sector can provide affordability in an otherwise unaffordable housing market. As a rule of thumb, retirement dwellings can be around 80% cheaper than buying a similar private home in the same area.

A 2022 PwC/Property Council Retirement Census found the average cost of a two-bedroom independent living unit in a retirement community rose by 6.6% over the 18 months to December 2022 to $516,000. Over the same period, national house prices climbed 26% to an average of $831,900.

Many retirement village operators can artificially suppress the buy-in value of their homes, deferring their profit-taking until later in the buy-sell cycle (more about that later).

Health and safety benefits

In a first-of-its-kind study in Australia, the Retirement Living Council found there are measurable health benefits to retirement community living. Its report, released in November 2023, found residents are 20% less likely to require hospitalisation after nine months in a retirement village than similar-aged people staying in their own homes.

Many retirement villages provide an array of services that can keep older people living independently for longer. These may include 24-hour assistance, in-home services, transport, exercise facilities, and social activities. The Retirement Living Council’s report found retirement communities are currently delaying the entry of around 11,600 people into residential aged care by around two years.

Social connection

The importance of social connection through retirement communities shouldn’t be understated. Medical studies have consistently shown loneliness may be just as significant to older people’s health as factors such as smoking, obesity, and physical inactivity. Retirement villages can provide a ready-made social network that immeasurably improves quality of life and connection for people as they age.

Cons of retirement communities

High costs and fees

Every residential community comes with its own contract. These can be long – commonly more than 50 pages – and very difficult for a layperson to navigate on their own.

Some communities offer strata-titled homes with ongoing maintenance and service fees to be paid to the operator. In others, residents may be leaseholders who pay a lump sum for their lease and ongoing fees.

Entry and exit charges can apply in both cases and need to be carefully considered. Contracts vary widely from state to state and from community to community. Exit charges particularly can be considerable; these are usually linked to how long a resident has lived in the community, and can include fixed charges for refurbishing the resident’s dwelling for the next buyer.

Exit fees can also account for a large slice of the payout figure when a resident moves on. The figure also usually doesn’t reflect any increase in market value from the time the home was purchased. This can significantly impact funds available for accessing higher levels of aged care, if required, or the value of a resident’s estate in the event of death.

Difficulty in obtaining finance

The vast majority of lenders will not provide loans for the purchase of retirement community homes.

Many retirement living operators market their communities with the assumption prospective buyers sell their family homes and purchase their retirement properties with money left over. If prospective buyers don’t have the funds to buy into a retirement community, it is challenging to obtain a loan.

If a resident is not yet 65 and still working, there may be some lenders who will provide a loan on the basis it will be paid back in full by the time the resident is 65. However, many lenders are loath to provide finance for retirement community homes given the restrictive covenants covering ownership arrangements, re-selling, and property values.

In addition, despite the hurdles and red tape surrounding aged care housing finance, the fact is, a lot of borrowers are beyond 55 years. Usually after age 50, borrowers are required to provide an exit strategy as to how they will pay off the loan without earning an income. Many lenders also have a hard cap of 80 years for the age of a borrower on their home loan books.

Paying for services you may not use

Residential retirement communities often come with a selection of shared facilities including swimming pools, tennis courts, gyms, community rooms, and gardens. The costs of maintaining these are shared among residents, just as they are in private body corporate arrangements.

With the average age of people entering a retirement community in Australia around 75, not all residents may be able to use the facilities they are locked into paying for.  

Living with rules

Some retirement communities have rules and regulations that might be difficult for some people to live with. These including restricting how long visitors can stay in residents’ homes, having children on site, pet ownership, car parking, and other by-laws. In extreme cases, contravention of by-laws can see residents removed from the community for non-compliance, a scenario that rarely applies with private home ownership.

Image by Ravi Patel on Unsplash

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