How do retirement villages work and what do they cost?

Ready to hang up your work boots and streamline your lifestyle? Retirement villages can be a popular option for some people. Just be sure to understand how retirement villages work – including the cost structures – before making the move.

What are retirement villages?

A retirement village is essentially a complex of dwellings that provides housing mainly, or exclusively, to residents aged over 55, or who are full-time retirees. The appeal of retirement villages is generally that they allow residents to lead independent lives in their own homes, while being able to enjoy a variety of shared facilities and a sense of community through village life.

Retirement villages are a reasonably popular option for retirement living and nationally there are around 170,000 independent living units in retirement villages, according to REA’s 2021 Retirement Living Report. The majority of these are located in New South Wales, Victoria and Queensland. Village occupancy has been increasing too, rising to 90% occupancy in 2021 compared to 87% in 2020 according to the 2021 PwC Property Council Retirement Census Snapshot Report.

How do retirement villages work?

Exactly how retirement villages operate varies between states and territories. Aged and Community Services Australia says this is because retirement villages are regulated by state and territory legislation. So, while many of the basic rules apply regardless of the village’s location, there may be aspects that are unique to retirement villages in your part of the country.

In terms of their purpose and how they operate, while retirement villages and aged care facilities both provide accommodation for senior Australians, they are not the same thing.

The Retirement Living Council explains that retirement villages are made up of private homes (typically called Independent Living Units or ILUs), usually with a range of shared facilities for recreation – anything from swimming pools, to gyms, bowling greens and tennis courts. Retirement villages generally have a community centre for residents’ use, and some even have spaces for doctors, physiotherapists and hairdressers.

The common thread is that residents of retirement villages are able to lead independent lives. By contrast, aged care facilities provide round-the-clock care for residents. That said, many retirement villages have aged care facilities onsite, as some retirement village residents eventually transition to an aged care facility.

What services are available in a retirement village?

Retirement villages can offer a range of recreation and relaxation facilities. Exactly what’s on offer will vary between villages, and it is worth noting that villages are operated both by profit-making enterprises and not-for-profit organisations, which can impact the facilities available for residents.

Along with lifestyle features, retirement villages can offer services either directly or through third party contracts, which are often valued by older Australians. These can include security monitoring, emergency call systems and a village bus to transport residents to local shops or outings. The village grounds and other facilities are maintained on behalf of residents who are free to make use of them without the effort of regular upkeep.

Who lives in retirement villages?

According to the PwC Property Council report, people living in retirement villages are usually aged between 75 and 84 years, though nationally the average age of residents is 80 years. Most people move into a retirement village at age 75, and after living in the retirement village for an average of eight to nine years, they are likely to move on – in many cases to aged care. This can make it worth looking for a retirement village with an adjacent aged care facility if you’re keen to have continuity in where you live as you progress through your senior years.

Interestingly, the average number of residents per ILU is 1.2 nationally. This suggests that while some residents share an ILU as a couple, many are the sole resident of their home, so a retirement village has the potential to reduce the sense of isolation that can impact some seniors.

How much does a retirement village cost?

The national average price of a two-bedroom ILU increased from $463,000 in 2020 to $484,000 in 2021, according to the PwC Property Council report.

However, this doesn’t entirely explain how much living in a retirement village costs. Villages can differ between types and tenures (the term used to refer to various forms of ownership and occupation). The vast majority operate on a ‘loan lease’ or ‘loan licence’ basis, where the resident pays a fee to live in the property but does not own it. Paying to own the property outright is a far less common option.

Remember, different rules apply across states/territories. Nonetheless, entry to a loan lease retirement village (the most common arrangement) can involve paying an entry payment for the ILU you wish to occupy. This payment usually goes to the owner of the village as an interest-free loan for the duration of your occupancy. In return, you are likely to be given a 99-year lease on your home, which gives you access to the residence and the village’s facilities. One of the potential advantages of this system is that you may not have to pay stamp duty on your retirement village residence, according to Aged Care Guide.

You will also likely be asked to pay ongoing (service) fees that help to cover the cost of keeping the village facilities in good order. According to the PwC Property Council report, the national average fee is $502 per month.

The Victorian state government advises that when you choose to leave, you could be required to pay significant fees and charges, often called deferred payment charges or deferred management fees. This is one of the key ways in which a retirement village unit differs from conventional residential property.

While you may be able to set the sale price of your ILU through an independent real estate agent, you could also be able to appoint the village owner to handle the sale on your behalf. In either case, selling fees can apply.

Recent reforms of retirement villages

In 2020, reforms were introduced in a number of states requiring village operators to be more specific in their marketing material about the fees and charges associated with village life.

The Victorian state government, for example, advises that before you sign any contract, the village must give you a disclosure statement that sets out the actual costs of entering, living in and leaving the retirement village. It also cautions that “entering a retirement village should be seen as a lifestyle decision, not an investment to make money”, adding that while people often presume their investment in a retirement village will increase in value over time, “this is not usually the case”.

What about the future of retirement villages?

The PwC Property Council report found three key issues could affect the retirement village sector in the future: increased government regulation, the high cost of construction of new villages, and a trend for seniors to stay in the family home and access home care.

These factors, and the complexity of the cost system within retirement villages, make it important to carefully consider if a retirement village is the right choice for you. Given our ageing population, some financial advisers do have specialist skills in this area. It could also be wise to seek independent legal advice while considering your options and navigating the system if you do decide to move into a retirement village

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