Downsizing for income: What you need to know about the lifestyle community option

Jun 21, 2019
Downsizing to a lifestyle village can free up funds to create a more comfortable retirement, says David Kennedy. Source: Getty.

A typical property downsizing scenario might involve selling the family home and moving into an apartment, ideally with a cheaper price tag, easy access to infrastructure and less household maintenance.

Yet when you are ready to move to a smaller home, there are many more living arrangements to choose from and it can pay to think creatively.

One option that has taken off in recent years is the ‘lifestyle village’, also referred to as a ‘residential land-lease community’ or a ‘manufactured home estate.’ In a lifestyle village, the resident owns the property, while leasing the land on which it sits from the community operator.

These complexes differ from retirement villages as there is no stamp duty to pay at the time of purchase, no entry or exit fees, no council rates, you keep the capital gain in the event of sale, and many residents receive Commonwealth rent assistance if they qualify for an Age Pension or DVA Service Pension.

How a land-lease community can improve your income

By selling the former family home, the idea is that you buy a house in a lifestyle village for a lesser cost, freeing up valuable funds to top up your retirement savings. The marketing pitch of the major lifestyle village operators suggests downsizing in this way is an attractive path to a financially comfortable retirement.

So why is demand for this mode of living so strong among older Australians? Demographics is an obvious reason, with the population of over 55s in Australia expected to grow from 6.6 million in 2017 to 11.4 million by 2050. More people simply equals more demand.

A further explanation is that strong house price growth over the past 20 years, combined with relatively low average super balances, means there are a large number of asset-rich, income-poor retirees looking for creative ways to boost their cash flow. Downsizing to a lifestyle village provides an opportunity to unlock the value that has built up in the family home over many years in order to enjoy a more prosperous retirement.

In an August 2018 results announcement, Simon Owen, the CEO of leading lifestyle village operator Ingenia Communities, summarised the growing appeal of lifestyle villages in the following way: “Many retirees have limited capacity to fund a comfortable retirement and downsizing to one of our communities is already making a significant difference to the quality of retirement for many of our residents,” he said.

Six months later, Owen attributed the rapidly growing demand from retirees to the unique combination of financial and lifestyle benefits of village living.

“The underlying fundamentals that make this industry so attractive remain strong. These include an ageing population with a desire to downsize in desirable coastal locations, and the compelling lifestyle proposition that land lease communities offer. We are seeing ongoing demand from downsizers for the affordable lifestyle our communities offer,” Owen said.

How much do you have to spend?

While there can be variability in purchase prices across different locations, lifestyle villages are generally more affordable to buy into than retirement villages. Ingenia Communities recently indicated the average sale price of its dwellings was $363,000. Individuals and couples selling larger properties in major capital cities are therefore likely to have a healthy amount of cash left over after downsizing.

For example, in February 2019, rival operator Lifestyle Communities confirmed that on average, new residents in its villages free up around $212,000 of surplus funds by downsizing to a lifestyle village property. That’s a serious boost to the average nest egg.

But improving your financial position is not the only benefit of making a lifestyle village your new home. You also gain access to new social connections, the opportunity to become part of a likeminded community, and in many cases, a wide range of services and activities that are just a few steps from your front door.

When retirees Denis and Judy Malligan sold their two-storey family home in Lake Macquarie in the early 2000s, they spent a couple of years travelling around Australian in a motorhome, before deciding to look for a more permanent place to call home.

An over-50s lifestyle village, Valhalla by Gateway Lifestyle, had just been built in the Central Coast village of Chain Valley Bay, set on 70 acres, just a few hundred metres from the shores of Lake Macquarie. While the popularity of lifestyle villages hadn’t yet reached today’s levels, Denis and Judy were attracted to the concept of community living.

“Before we bought in, we used to drive past it, and I said to Denis ‘I want to live there’,” Judy says. “One day we drove into Valhalla and I just liked it immediately. Initially, I thought we would stay for a maximum of three years or so, but 17 years later we are still here and we absolutely love it.”

Denis enjoys the social aspect of village living. He is president of the bowling club and drives residents to and from social events on the village bus of a weekend. He values the community spirit and friendships he and Judy have built with other residents over the years.

“We know 90 percent of the people in the village,” he says. “Whereas if you live in suburbia, you’re lucky to know your next-door neighbour. You can get involved in a lot of activities like we are, but there’s other people that don’t want to and that’s fine. They just enjoy a quieter lifestyle.”

Non-financial benefits to consider

In an era where isolation is a growing problem for older Australians, one major strength of lifestyle villages is their focus on building a strong sense of community. Opportunities for social connection are frequent, in contrast to ordinary living arrangements where interaction with neighbours can be less common.

Talking to Denis and Judy about their day-to-day experiences, the language of the ‘lifestyle village’ makes perfect sense. While they reside in a three-bedroom, two-bathroom house, they also have access to a bowling green, tennis courts, swimming pool, mini-golf, craft room, men’s shed, function room, library and a community garden.

Social events and activities are frequent, so when you become a resident, you are buying much more than a property.

Denis advises anyone considering a move to a lifestyle village to do their homework, however, and thoroughly vet the villages they are interested in.

“There are some villages that are not as well run as ours and there can be conflict between residents and the management,” he says.

Lifestyle villages are not for everyone, but if your main motivation for downsizing is to free up capital to enjoy more financial flexibility in retirement, it may be an option worth exploring.

Would you consider moving into a lifestyle village? Do you think it’s more financially viable than other retirement living options?

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