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Do you have to sell your house to move into a retirement village?

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SCOTT HAMMOND/ Stuff

What’s not to love about a life on the road? John and Lynette Valk have no regrets about selling up to buy a converted bus.( Video first published July 2020.)

Gay Geursen and her husband are embracing a new stage of life. They are moving out of their Wellington home and into a retirement village in Cambridge.

Their decision was driven by a range of factors, including health issues and a desire to relax and enjoy life with some support.

Geursen says they downsized to a smaller property a few years ago, but their changing needs meant the time felt right to buy into a village.

“After looking at lots of places, we fell for Te Awa, and we’ll be moving into a decent sized two-bedroom villa there. It’s not attached to anything, so it’s private, but the broader village offers companionship and support.”

But it was the sale of their home that has enabled them to make the move. Their Te Awa villa cost $1 million, which was similar to the price they sold their home for.

They sold their rental property this year, too. This meant they could afford to buy the home they wanted in the village of their choice, rather than a smaller or cheaper option.

“We are happy with our decision and looking forward to the move,” she says. “But we are lucky to be in a position to do it as there are a lot of people who can’t afford to do this.”

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Summerset’s Ellerslie retirement village in Auckland.

What if you don’t own a home?

Geursen is correct that not everyone has the option of moving into a village. While 14 per cent of people over 75 now live in villages, and the number is growing, if someone does not have the funds to buy a licence to occupy, the usual route in, they are out of luck.

Te Ara Ahunga Ora – Retirement Commission retirement villages lead Michelle Reyers says it is necessary to have a capital sum upfront. Licence to occupy costs vary widely depending on the location and the village, she says. “A quick look at Trade Me Property shows options ranging from $180,000 for a smaller, studio-type apartment in Nelson to $2 million for a place in Devonport.”

Prices are set at about 25 to 35 per cent less than the average freehold home would be priced in the surrounding area. Reyers says the idea is someone can sell their home, buy into a village and have money remaining from the sale to help finance their costs.

“But the model does assume you have a house, or another asset, such as a business, to sell or the funds to buy in. If you don’t have those options available to you, it is not usually possible.”

In some villages, there are some units available for rent, but 95 per cent of village units fit the licence to occupy model, she says.

Most people who hit the retirement stage without their own home, or significant funds at their disposal, have to continue renting. There is some central or local government-provided pensioner housing around, but the stock is considerably reduced. Some papakāinga also offer rental accommodation, as well as other tenure options, and Abbeyfield housing offers rental housing with no upfront capital cost.

Community organisations, like Auckland’s Virtual Village East, can help provide vital networks of friendship and support for older people, especially those who don’t want to, or can’t afford to, move to a village. Spokeswoman Bonnie Robinson says isolation and loneliness are bad for mental and physical health, so the focus is on helping older people to make friends.

“The goal is not the activity in and of itself,” she says. “But to support the older people who attend to connect and take these connections beyond the activity, and to give them agency of their own. It’s about building community.”

Home ownership rates are falling among older Kiwis, with 2018 Census figures showing that leading up to retirement age (60 to 64 years), about 1 in 4 people did not own the home they lived in. Pacific peoples and Māori are less likely to own their home than other ethnic groups, according to Statistics NZ.

This means the issue of a lack of affordable housing options for renting retirees will grow. Reyers says it is a problem, and the Retirement Commission has raised the need for more alternative housing options for older people as a pressing issue.

“There are some emerging options, including various co-housing models, which could help.”

You can try the My Home, My Choices tool to explore some of the options available to you.

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Retirement Commission retirement villages lead Michelle Reyers says the model assumes people have a house, or another asset, such as a business, to sell or the funds to buy in to a village.

Do you have to sell up?

For those who do own a home, the decision to sell up and buy into a retirement village is not one to be made lightly. That is because the model means it is not the same as buying a house, and it is not an investment.

An example of this is that if someone decides they want to leave the village and sell back their licence to occupy, about 25 to 30 per cent of the purchase price will go back to the village for “deferred maintenance” costs. That means the person ends up with less capital than they started with.

It is important to recognise that once a home is gone, the asset is gone, says Mint Asset Management’s David Boyle. “So if you sell up, buy in, and you don’t like the village you end up in, you’re pretty stuck as you won’t get back the same amount of capital to buy easily elsewhere.”

Boyle says people need to weigh up more than just the numbers, although they are important.

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Mint Asset Management’s David Boyle says only a small percentage of people would be able to hold on to the family home and buy into a retirement village.

If an individual or couple is wealthier, with assets beyond the family home such as a rental property portfolio, holding on to their own property and using other means to buy into a village could be an option, says Boyle. Doing so could allow them to use rental income to finance their living costs, while they continue to accrue capital gains.

But only a very small percentage of people would be in a position to do that – and many would not want to. A rental property comes with stress, and requires work like maintenance and finding tenants, he says.

“Holding a property might be in the best interest of the children, or the estate, but it usually isn’t in the best interest of the person. And most people prefer their parents to be in a secure, supportive environment.”

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Arvida’s Copper Crest retirement village in Tauranga.

Enrich Retirement director Liz Koh says it needs to be looked at holistically. “You need to think about what is best for you at this stage in your life. If you have worked hard to save up for your retirement, you should be able to enjoy it in the way that you want.”

Going into a village is a lifestyle decision, not an investment one, she says. “People sacrifice capital gains for the benefits of a village, such as companionship, access to facilities, and support. It’s a trade-off, but it’s one the homeowner, not their family, should be able to make.”

How else can I use my home?

There are alternatives to retirement villages, including staying in the family home with support if needed, downsizing to a smaller, more manageable property, or moving in with family.

But Koh says there are a host of considerations involved with these options too. An issue with downsizing, for example, is that it can cost nearly as much to buy a newer, smaller place as the sale price of an existing home – so many not free up much cash, she says.

“There is often not much change from the transaction, unless you are moving to a much cheaper area. So that is a consideration if you are wanting some capital to support your living costs.”

Reverse mortgages can also help those who stay in their home, or downsize, although the first line of defence should be the person’s own cash resources, she says.

“But they are not like normal mortgages: you can’t get kicked out of your house, and payments come out of your estate on sale.

“People shouldn’t be afraid to use a reverse mortgage, especially if it is for important home maintenance or a health issue. So if you have a leaky roof, why not take out a reverse mortgage to fix it, and maintain your home and its value.”