The New Zealand retirement village industry is well-established and flourishing, while Britain’s is still finding its feet. JUDE BARBACK talks to Richard Davis, chief executive of LifeCare Residences, about the differences and similarities between the two sectors.

You don’t need to look too far beyond our flag to feel the hangover of British influence in New Zealand. However, when it comes to comparing retirement village industries, it would appear New Zealand’s is leading the way for its British counterpart.

LifeCare Residences is a company with a foot in both countries, and therefore those at the helm – chairman and majority shareholder Cliff Cook and chief executive Richard Davis – are well attuned to the differences between the two markets.

From around the mid-nineties, Cook started looking at the United Kingdom market and recognised that the retirement community concept had not been established to the extent that it had in New Zealand and Australia. In 2004, after five years of extensive research, Cook set up an office in London and worked on establishing a retirement community business in the UK, which would become LifeCare Residences.

From the early stages, it became clear that there was scepticism in the UK that the Australasian model for retirement communities would gain acceptance. In 2006, to build credibility in the UK, LifeCare Residences purchased an existing high rise retirement community: Somerleigh Court, with 68 extra care apartments and a 40-bed nursing home facility in the town centre of Dorchester, Dorset.

That was then. The company has continued to build momentum in the UK; it is now looking to provide London with its first luxury retirement community.

Even so, there are still plenty of opportunities in Britain for companies like LifeCare Residences and other players in the sector. The British retirement village industry currently caters for around 0.5 per cent of over 65 year olds, in comparison to around 5.5 per cent in New Zealand.

Investment expert HJ Sims noted in a report that in New Zealand, where retirement villages are more established, the general public is very aware of the benefits of senior housing and especially the continuum of care, whereas in the United Kingdom, the public is largely unaware of such benefits and therefore the take-up is significantly lower than that of other markets, like New Zealand and the United States, for example.

The HJ Sims report also points out that the public’s awareness of retirement villages correlates to the availability of capital.

“There are a variety of competing capital sources in New Zealand, including the public equity markets for larger operators, which helps to drive down the cost of capital for new retirement villages. In the UK, however, the lack of familiarity with retirement villages made development capital very difficult to raise. As a result, the terms on the development financing were far more onerous compared to those financings available for New Zealand developments.”

Richard Davis agrees. He says the low supply of retirement communities, which is in part driven by the accessibility of alternatives such as Sheltered Housing (a basic form of housing for the elderly with low levels of resident amenity, services and care) is also due to the fact that planning permissions and funding can be hard to achieve for developers.

“Development funding can be difficult to secure because the industry is small and seen by many lenders to be unproven still.”

He says the main issue holding up supply is that developers have not established profitable operating models and therefore opt to build residential projects for a development profit, rather than retirement villages for an operating profit.

Indeed the two business models differ considerably. The tenure for the residents is different. The Occupation Rights Agreement (ORA), typically backed by a Licence to Occupy, is very standard in New Zealand, whereas the dominant tenure in the UK is a long term lease – typically 150 years.

“The lease structure is less flexible than an ORA and so requires the operator to ensure that all future possibilities are provided for in the original lease,” says Davis, “This is particularly important for deferred management fees and monthly service charges.”

Davis says the comparatively sophisticated business model used in the New Zealand industry is something the company has brought to the UK.

“Our experience and understanding of what our target market wants, and how they would like to pay for that, has enabled us to design a business model in the UK that is well ahead of what anyone else is achieving, albeit still well behind what is being achieved in New Zealand,” says Davis.

The infancy of the British retirement village industry can present challenges to those forging ahead. Davis says that in addition to the general lack of understanding and experience from lenders, which can make funding new developments challenging, there is also a lack of depth among ancillary professional services, such as valuers, architects and planners.

The UK industry as a whole has less prominence with legislators and regulators than in New Zealand.

“Policies and regulations are very different in the UK. There is no specific legislation for retirement villages in the UK and retirement villages tend to be covered by a hodgepodge of legislation designed to cover other forms of accommodation and services.

“There aren’t really any central or local government policies or strategies relating specifically to retirement villages and this is something that the recently formed trade body (Associated Retirement Community Operators) is working on.”

However, the relative immaturity of the UK industry also presents an opportunity for LifeCare Residences. Davis points out that the massive undersupply of retirement villages means there is very little competition.

This is clearly evident when one considers that the retirement village LifeCare Residences is currently developing in Battersea will be London’s very first. Owing to London’s dense population there are 90,000 people aged 70 years and over within a four mile radius of the Battersea Place retirement village, enabling LifeCare Residences to have three quarters of the apartments pre-sold prior to construction. London’s house prices are high and so the Gross Development Value for Battersea Place is £120 million, an average of £1.1m per apartment.

Despite the differences between the New Zealand and UK industries, LifeCare Residences takes a similar approach to sales and marketing in both countries, with all sales and marketing managed in-house.

LifeCare Residences also aims to provide care as part of the retirement village wherever possible, in both countries.

There are mixed approaches to the provision of care in UK retirement villages. Operators targeting an older resident, typically 80 years and over, will usually provide care, while the operators targeting the younger old, tend not to.

Nick Sanderson, chief executive of Audley, another UK retirement village operator, believes care is integral to retirement villages and should be personalised to the needs of the resident. The Audley website boasts the provision of “as little or as much support as you need”.

“Retirement villages provide a lifetime lifestyle that can accommodate some element of extra care when needed,” Sanderson told the Telegraph.

Other players in the British sector tell a similar story; LifeCare Residences is no exception. Davis points out that those operators not providing care have little to differentiate themselves from well-designed residential property for an older market, and mostly rely on residents opting for a lifestyle change.

“Our experience at LifeCare Residences is that the biggest demand is coming from the 80+ market who are wanting some level of care immediately, or at least the peace of mind that care will be available in the village when they need it,” says Davis.

It would appear that care provision in all its guises – assisted living in residence, progression to a care facility on-site – is important to the burgeoning UK retirement village sector, as it has proven to be here. As older Brits, particularly the cashed-up baby boomers, become more au fait with terms like “continuum of care” and “lifetime lifestyle”, the UK retirement village industry looks set to boom.

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