A few days ago an elderly couple, who looked much younger than they really were, approached me with the idea of moving from their home into a retirement village. This happens quite regularly and in my experience, most of us consider buying a retirement unit to be a property purchase – buying bricks and mortar with the attendant safety and, possibly, appreciating value.
However, what made them hesitate was that they didn’t have to pay stamp duty, which a property transaction would usually require. Therefore, what was going on here?
The answer is that when you buy a unit or villa or house in a retirement village you are buying a share of the company or trust that owns the entire village. Your share is then tied to a particular unit and – like with property – you will only get your money back when the share is sold to another person who then moves into the same unit.
That is a big difference because it adds another layer of risk – the company or trust could go broke and as a shareholder you are at the back of the queue. You only get your money back after the receiver and all creditors have been paid, which means you could lose a quarter, half or even more of your invested money.
In other words, buying into a retirement village is more like buying a share of a business than purchasing a property. There is nothing wrong with buying a share of a business, other examples are going to the Australian Stock Exchange and buying a share in Westpac or BHP, but it is buying something much more volatile than a residential property.
This risk is even bigger as, in the case of the couple who came to me, they are looking at buying into a retirement village before it is completed. That can work out well but there is, for example, the risk of the developer going broke or an expensive legal dispute being waged.
It is good to be aware that buying into a retirement village is different from buying a property even if it looks from the outside very similar. It is not better or worse than buying a property but it is certainly different.
There are lots of good checklists online which are worth investigating but some of the main items may be: How established is the retirement village operator? How are their finances (your accountant may be able to look into this) and in my opinion quite important: Do they have ‘ageing in place’ available, which means do they also have residential aged care on site which tends to make it much easier when we have to move from the retirement unit into residential aged care?
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