Every Step: How to avoid the common pitfalls in retirement villages

THINKING of moving into a retirement village? Make sure you understand what you are signing up for. John Dagge explains what you need to know.

Life in retirement villages suits many people, but make sure you know what you are signing up for.

Q. I’m thinking of moving into a retirement village. What do I need to consider and how can I ensure I won’t get ripped off?

AS Australia’s population ages, the number of people living in retirement villages is expected to double by 2025.

A sense of community, safety, recreational facilities and the possibility of a low-maintenance dwelling are often cited as key benefits by retirement village residents.

But the legal arrangements governing the centres are complex — contracts can run to 100 pages — and anyone considering the move needs to be crystal clear about their rights and responsibilities.

Concern about the retirement housing sector, which is broader than just retirement villages, has the State Government pondering the need for a Retirement Housing Ombudsman.

The Government’s inquiry into the sector has attracted more than 750 submissions, many from retirement village residents who are less-than-happy with their arrangements.

If you’re considering moving into a retirement village, there are a few common points of friction you need to look out for.

The first is too make sure you are moving into one.

This many seem silly to point out, but Consumer Affairs Victoria notes not everything that looks like a village actually is one.

Retirement villages in Victoria fall under the Retirement Villages Act.

A growing number of companies are rolling out low-cost manufactured housing estates, often in former caravan parks, where residents own their home but lease the land.

These “lifestyle parks” not officially classified are retirement villages.

Aged-care facilities also operate under a different legal framework and being a resident of a retirement village does not guarantee you a place in an aged-care facility.

Within the retirement village sector, there are also a number of different contractual arrangements.

The most common are strata title, where residents own the unit, or a long-term lease or licence arrangement where an entry fee is paid and residents receive a lease or license to live in the property.

Residents will also pay a monthly fee to cover maintenance and the cost of communal facilities.

Some modern retirement villages have features such as small cinemas, which are reflected in the fees charged to residents.

A third tier of fees include exit or deferred management fees — arrangements that tend to cause the most angst between residents and village owners.

This band of fees is generally calculated as a percentage paid per year of residency up to a cap.

All up, deferred management fees can range from 20 per cent to 40 per cent.

The fee may be calculated based on the initial entry fee or the resale value of the property.

It is important to fully understand how this fee is calculated — some residents have found themselves financially short when it comes to moving into an aged-care centre.

Consumer Affairs Victoria also advises people to check who pays for refurbishments, whether a resident has to pay the monthly maintenance charge after they leave until a buyer is found and who pockets any capital gains on the property.

As well as these costs, potential residents should also ask about administrative fees, legal fees and any commissions that management may charge for selling the property when they leave.

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This article is part of the Every Step series from the Herald Sun business team, walking you through life’s big financial decisions from the cradle to the grave. To see all the articles in the series, click here.