We recently received an enquiry asking if we would invest in retirement villages? We know that many others would possbibly be considering this option so I have decided to post my reply:
Hi,
Thanks for your enquiry. We have mentioned in a previous newsletter our concern over retirement villages as an investment. A relevant portion from one article follows below.
Retirement Villages
Units in retirement villages are being promoted as the high demand property of the future. While there may be a demand for these, they are not reflective of where people would generally choose to live. Values are not set by people falling in love with them or with where they are located as much as the commercial need to live there. Many retirement village residents live in these places because of a lack of viable alternative.
Rental income from these properties is tied to pension rates and inflation and the future value of such an investment is likewise tied to the commercial return. Therefore, a (retirement unit) will appreciate only in line with inflation and any increases in the pension; regardless of any boom in the residential property sector.
Again as it is with holiday let accommodation, you will be at the mercy of the management team. Imagine trying to move the management rights away from the resident managers to an outside firm – good luck, you’re going to need it!
Yes we have an aging population and yes demand may be steadily increasing for this type of accommodation, however, why would I limit an investment decision to a property that will only ever meet the housing needs of a very small sector of the overall population? Again, not “set ‘n’ forget” ™.
Click here to read the whole article.
I have helped several people into this type of property back in 2000-2003 and they seemed like a good idea at the time from a rent return point of view even though the capital growth was doubtful.
In hindsight every one of these ended badly. I am very sorry I ever helped those people into retirement villages as an investment. Sorry if that seems harsh but it is simply my experience.
One major issue is that the lenders vary their opinion on these. Many lenders simply won’t lend on retirement villages and then will only lend around 60% (as opposed to 80-90% on ordinary residential property)
I am happy to chat about this further if you would like to contact me and please bear in mind my comments are based purely on retirement units as an investment.
Martin Bell
Property Mentor
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