Although there are many options today for older Aussie who want to exit the family home, from neat little flats in slick new apartment buildings to exciting sea- and tree-change destinations, the most common downsizing destinations are still the longstanding options: retirement villages and land-lease communities.
So, how to choose which of these two options may be the right one for you, either now or in the future, when it comes to the costs?
Land-lease communities (also commonly known as lifestyle communities) and retirement villages have several factors in common. Both usually offer communal social and leisure facilities, a built-in social calendar of activities for residents, enhanced home security features and low-maintenance accommodation.
Among the diversity in housing available in land-lease communities and retirement villages across Australia, there are even options for co-housing should you wish to save on living expenses by sharing your home with another person.
But there are also big differences between these two downsizing options, Rachel Lane, principal at Aged Care Gurus and author of Aged Care, Who Cares?, cautions.
Lane says it’s important to be aware that land-lease community residents and retirement village residents have different legal rights and are subject to different contractual obligations, residential protections and fees, and to further complicate matters, each state and territory in Australia has its own specific legislation governing both options.
That means it’s vital to research the relevant legislation in your state or territory to ensure you fully understand what you’re signing up for, or to seek a professional adviser who understands the legislation and can advise you.
However, for a head start on this research, some of the key cost differences to be aware of are:
Retirement village contracts can involve one or more ownership structures, including strata title, leasehold and rental.
“In a retirement village the ingoing is the price you pay for your right to occupy your home and use the common facilities, typically on a leasehold or licence arrangement,” Lane explains.
“Where the home is in a strata title village, then the amount you are paying is to own the home and have use of the common facilities, often through an owner’s corporation. In the case of strata title you may need to factor stamp duty into the ingoing costs.”
With land-lease communities, the situation is simpler; the price you pay upfront is the purchase cost of your home, plus the cost of leasing the land it sits on.
“In both retirement villages and a land-lease communities, residents pay a weekly or monthly fee to cover the running of the community, its facilities and insurances,” Lane says, noting that the ‘site fees’ land-lease residents pay are commonly higher than the ‘general service charges’ paid by village residents.
This is because the companies that own land-lease communities are legally permitted to profit from their general running fees, and retirement village providers are not.
That said, land-lease residents usually face a lower or no deferred management fee (DMF) when they choose to exit their residence, she adds. And there’s another benefit to land-lease. “You own the home but lease the land, [which] means that most pensioners qualify for rent assistance on their site fees,” Lane says.
The relationship between retirement village residence and the Age Pension is more complex, and depends on the cost of the home. The government provides more information on retirement villages and the Age Pension here.
Both retirement village and land-lease communities have various obligations that a resident undertakes to meet, and that includes how they dispose of their home.
“When the time comes to sell your home in either a retirement village or land-lease community you’re likely to incur fees, typically agent’s fees and marketing expenses, and it may include the cost of repairs or improvements to your home,” Lane explains.
But under many retirement village contracts, you’ll also be liable for a DMF, also known as an exit fee, which is usually set as a percentage of either your original purchase price or the sale price. These percentages can range from about 25 percent to 40 percent, depending on the village provider and when you bought into the village, and are designed to cover the cost of creating and maintaining the village’s communal facilities.
The DMF effectively reduces the capital you’ll receive upon the sale of your home in the village.
Aside from contractual and cost differences, Lane says the one question Aussies must ask themselves when considering retirement accommodation is ‘what happens if I need care?’.
Retirement village providers often have residential care offerings either on-site at their villages, where an aged care facility is on the same property, via home care services provided to village houses, or at a partner aged-care facility nearby.
Land-lease communities, meanwhile, are increasingly offering the same continuation of care by adding aged care and home care options to their communities.