Retirement and downsizing are essential considerations for senior Australians.
The decision whether to stay in the family home or move to a retirement living complex is a giant leap and should only be undertaken after careful consideration. It is important to understand that it is costly to undo this action. Traditional houses are relatively easy to buy and sell but units in any retirement living complex are more difficult to cash in.
When examining the retirement living options in Queensland, there are two main classes, governed by different Acts and particular terminology. It is essential that prospective residents of a retirement living complex understand the property rights they are buying and their associated rights and responsibilities, especially their security of tenure.
Retirees have three distinct accommodation options in Queensland, and each one has their advantages and disadvantages and the variables of age, health conditions, social intercourse and financial standing will affect the worth of each option to an individual.
Own or rent a house or other accommodation unit
This can be in any property area of their choosing and means they are living independently, usually in an area that has traditionally been their home or is linked to family members. This means they continue to live in the multigenerational market and will own or lease a house or unit. It is possible for residents to receive home-care assistance in their own homes and this option is popular with retirees.
Manufactured Homes (Residential Parks) Act (Qld) 2003
This Act covers a variety of residential park complexes that have some form of “movable” homes within a park setting. There are now specialist developments for seniors under this Act and they are often called “Over 50s villages”. The comments in this paper will relate specifically to the sector of Manufactured Homes that are “residential parks planned and developed by an entity for over 50s”. These developments have substantial houses or units built in the residential park environment for seniors’ living. They are usually referred to as “Residential Parks”.
Retirement Villages Act (Qld) 1999
Under this Act the villages have independent living units (ILUs) designed for seniors within a planned community-based environment. They may be linked to residential aged care facilities (RACF), however the association with the services and facilities of the RACF should be understood by the residents in the ILUs. Newer developments are becoming more diverse in their accommodation styles, but they are generically referred to as “Retirement Villages”. The Retirement Villages Regulation 2000 is linked to the Retirement Villages Act (Qld) 1999.
There is a big difference between the property rights attached to a freehold, individual house or body corporate apartment and a seniors’ living complex. The main decision factors, when considering retirement living, are illustrated in Figure 2.
It shows that, while a single dwelling owner usually focuses on a desired location and the house characteristics, the seniors’ living complex resident should also examine the nature of the community (incorporating lifestyle and communal facilities) and the management (which controls ongoing costs, refurbishment, security and services) of the complex.
This paper will now focus on the specialist seniors’ (or retirement) living options (2 and 3 mentioned above) and address the many factors that impact on the worth of either option.
The characteristics of residential parks and retirement villages
Property economics theory explains that interests in real property are a “bundle of rights”. The bundle of rights being traded in the three accommodation options mentioned above differ substantially. The market price of the bundle of rights is, in general, set by supply and demand factors in the existing marketplace for those rights.
When considering housing especially developed for seniors the bundle of rights varies according to the governing legislation and, consequently, it is essential to establish a value for the particular bundle of rights by referencing the marketplace for similar bundles of rights. Even the rights attached to residential parks and retirement villages differ and the main differences are outlined below.
The residential parks legislation allows the homeowner to lease the site and own the improvements placed on the site. The homeowner may sell their rights to another party and receive any capital gain or loss from the sale. The homeowner pays a site rent that meets the costs of management of the complex and the communal facilities that are owned by the park owner.
The retirement village legislation is much more complex and prescriptive. In most situations the residents pay for a right to occupy a developed unit/apartment for their lifetime, but the ownership of all real property remains with the scheme operator. In a retirement village, the funds returned to the resident when they exit the accommodation vary but in most cases the resident must pay an exit fee that is often described as a deferred management fee.
As seniors’ living complexes require the sharing of the “bundle of rights”, it is essential that both parties are involved in the management and functioning of the accommodation complex. In fact, a specific object of the RVA is “to facilitate participation by residents, who want to be involved, in the affairs of the retirement village” (RVA s3(2)(c)). The management style of the site manager/scheme operator has an overriding impact on the lifestyle and community relations within the village. This situation is similar to major shopping centres where the input from both shop lessees and centre management are necessary to ensure the successful functioning of the centre.
Important characteristics of residential parks and retirement villages in detail
In a residential park the homeowner is “a person who owns a manufactured home that is positioned on a site in a residential park under a site agreement” (MH(RP)A, s8(1)(a)). The site agreement is the document that describes the rights and responsibilities of the homeowner. In essence, the homeowner leases the site (land) from the park owner and owns the “movable” house on the site. The homeowner has the right to transfer their right to another party, under certain conditions. In a retirement village, the resident is “a person who has a right to reside in the retirement village and a right to receive 1 or more services in relation to the retirement village under a residence contract” (RVA s9). In most cases the resident has a license or a lease over the unit or apartment but it is also possible that the resident has a freehold interest. The life interest relates to the person or persons who have signed the residence contract.
Occupant age restriction
The residential parks legislation does not mention any age restriction but the general expectation is that homeowners will be over 50 years old. In general, it is expected that retirement village residents will be 65 years of age or older, this restriction applies to most retirement villages.
Entry costs (Ingoing Contributions)
Entry fees, being the cost to secure a site lease together with the improvements on the site or a life interest, are determined by the park owner or the scheme operator. Certain retirement village marketers advise that the entry fees for retirement villages are set at 20% to 30% less than the equivalent price for residential houses or units within the area, but this supposition will be discussed below. The entry fees for both residential parks and retirement villages are set at the market price for that type of accommodation unit. The entry fees for retirement villages should be considered in conjunction with the exit fees charged when exiting a village. Unfortunately, the high degree of variability of entry fee options compounds the difficulty of quantifying the ingoing and outgoing costs. This is not the case with residential parks which do not have exit fees but leave the responsibility and benefits of resale of their rights to the site owner.
Ongoing levies/site rent
Both residential parks and retirement villages are situated within complexes with numerous communal facilities for the benefit of the site owners/residents. It is, primarily, the responsibility of the site owners/residents to pay for the services and maintenance of the communal facilities. Park owners of a residential park pay a site rent that incorporates a rental for the site as well as their allocation of the communal service charges. The MH(RP)A does not specify the individual items in the site fee but does explain how costs and special costs can be included in the site fee. The residents in retirement villages pay a services levy that equates to the estimated amount of the general service charges as well as a contribution to the maintenance reserve fund. The RVA specifies the components of the ongoing levy and the requirements of scheme operators to disclose the assessment of the levy figures. It is reasonable to expect that the site fees of the residential parks will be substantially higher than the levies in the retirement villages because the residential park site fee includes the site rental as well as management and maintenance costs while the retirement village residents pay an exit fee (also referred to as a deferred management fee) in addition to the services levy. Both site owners and residents have rights to challenge the determined amounts of the site fee or levy. Clearly changes in site fees or levies are a prime concern of the site owners’/residents’ committees.
This is the biggest differential between the two options and the term “no exit fees” is widely used in the marketing of residential parks. It is therefore necessary to devote attention to this differential here and under the heading of Anomalies below. Retirement villages charge an exit fee, which is sanctioned by the RVA, but limited to a maximum of 35% of the original entry fee or the subsequent entry fee to the next resident. The initial justification of this fee was to minimise the occupation costs and fees for residents and it was called the “deferred management fee”. However, some management costs are included in the general services fee. There is no exit fee payable to the park owner under the MH(RP)A but the homeowner is responsible for the selling costs and benefits from the sale of the site plus improvements.
In residential parks, the site owner receives the benefit and risk of capital gain or loss from the sale of the property to another site owner. The park owner has a responsibility to give a site lease to the next park owner, provided they meet reasonable requirements. Some retirement villages still permit residents to participate in the capital gains or losses when surrendering their occupancy, but most do not. This means that the scheme operator repossesses the unit and sells it to the next occupant. The exiting resident receives repayment of their entry fee less the exit fee (called an exit entitlement) after the new resident has paid their entry fee. If no new resident is found within 18 months, then the scheme operator is responsible for paying out the exiting resident.
Learn more about retirement living options in Queensland:
- Bunce D and Reid J (2021) Retirement in residential parks in Australia: Smart move or move smart, Urban Policy and Research, 39, published online 18 August 2021
- Hu X, Xia B, Skitmore M, Buys L and Zuo J (2017) Retirement Villages in Australia: A literature Review, Pacific Rim Real Estate Journal, 23:1
- IVSC, 2021, International Valuation Standards, effective 31 January 2022, IVSC, London
- McAuliffe B (2010) Valuation methods in resident funded retirement villages in Australia: a practitioner’s prospective, Pacific Rim Real Estate Society Conference Wellington, proceedings online
- Petersen M, Tilse C, Cockburn T (2017) Living in a retirement village: choice, contracts and constraints, Journal of Housing for the Elderly, 31:3.
- PwC/Property Council of Australia, (2020), PwC/Property Council Retirement Census, online: https://f.hubspotusercontent40.net/hubfs/2095495/2020%20Retirement%20Census%20Snapshot%20Report-1.pdf
- Towart L (2021) Retirement and Aged Care Property Valuation, Ch 12 in Principles and Practice of Property Valuation in Australia, third edition, 2022, Routledge.