Fletcher Building’s new retirement village on Auckland’s North Shore is offering shared capital gains and lower management fees as part of the deal for retirees who buy in.
As the population ages, demand for retirement living options has increased, but there have long been misgivings over the ownership model used by many villages. Residents buy the right to occupy a particular unit in the village, which is known as an occupancy right agreement (ORA), and when they leave, they are charged a deferred management fee.
Many villages did not return a former resident’s money until someone else bought the ORA for the unit they had left. This could take months, and some villages continued to charge weekly fees until a sale happens. Most villages also retained any of the capital gains accrued on a unit when it was resold.
Fletchers, however, which opened the first four of 48 terraced homes in its Red Beach village for viewing last week, has decided to structure its retirement living brand differently.
Its Vivid Living villages would have a 15 percent deferred management fee, which was lower than most traditional villages. Ryman has a fee of 20 percent, and the sector average is 30 percent, according to analysts.
Fletchers would pay back 10 percent of the residents’ advance within five days of an ORA ending, not charge weekly fees after the resident had left, and would buy back the home within four months.
Residents would also share 50 percent of any capital gains, less the cost of refurbishment, from a sale, and if the home did not sell for more money Fletchers would not pass on the capital loss.
Fletcher Residential chief executive Steve Evans said the financial operating model took on board the recommendations of a Retirement Commissioner discussion paper on villages released last year.
“People work long and hard to build up their nest egg and want to make smart financial choices in their retirement years. Our financial model throws something different, and fairer, into the market for them to consider.”
Vivid Living villages would not have large-scale amenities, such as restaurants and swimming pools, as traditional villages did, and this allowed Fletchers to keep fees lower and share capital gains, he said.
The first Vivid Living village was located within Fletchers’ large existing neighbourhood at Red Beach, and residents were not separated from the community, so they could get out and do what they wanted.
More Vivid Living developments are planned, and the next ones would be built in Fletcher’s communities in Waiata Shores in South Auckland, Park Green in Karaka and The Hill in Ellerslie.
