Looking back over 2017, several important developments occurred for the retirement village sector. Perhaps most important for operators, demand for village living continued across the country, and units were built at a rate of almost 50 a week (in the 40 weeks from December 2016 to October 2017, 1,924 units were added to the retirement village stock, increasing the totals from 28,168 to 30,092), and the capital value of the sector also rose by some $820 million from $12.64 billion to $13.46 billion over the same time. (CBRE RV Capital Value Estimates for April 2017 and October 2017)
Using the usual multiplier of 1.3 people per unit, retirement villages are home for more than 39,000 older New Zealanders. This is more than the population of either Taupo or Whakatane, and not far short of the population of Timaru – a growing number of people every year are discovering the many benefits of retirement village life.
People give many different reasons to move to a village, but with the property boom, releasing equity is certainly among the principal drivers. Research undertaken by social research firm CRESA compared the financial outcomes for people selling the family home and moving to either an own-your-own unit or taking up a Licence to Occupy in a village. The results were demonstrably better for those choosing to live in a village – often by hundreds of thousands of dollars. The graphs below illustrate this – people moving to another owned unit not only paid more for that unit than those moving to a village, they also had far less money left over after they’d made the move.
The RVA spent a lot of time explaining this effect to thousands of people across the country via public forums organised by the Commission for Financial Capability (CFFC), as well as at Grey Power, Probus Club, U3A and other meetings. We also sent out dozens of intending resident packs in response to enquiries from these meetings and via our website. We intend to continue to this programme of public engagement in 2018.
Review of the Code of Practice
One of the Retirement Commissioner’s legislative tasks is to undertake monitoring reviews of the Retirement Villages Act and Codes of Practice and Residents’ Rights to ensure they are working as intended. Last year the focus was on the complaints and disputes process, resulting in some useful changes to the Code of Practice that come into effect in April 2017. One key change inserted a mediation option as a step in resolving complaints before they reach the Disputes Panel. The RVA worked with dispute resolution organisations to find a cost-effective way members can access the mediation process.
In November 2017 the CFFC required operators to register all formal complaints (i.e. complaints received in writing) on line to understand trends and issues impacting on residents. As at the end of November 2017, some 218 formal complaints had been registered and we were pleased to see that around 75% had been satisfactorily resolved at village level by the end of the reporting period. Most of the remainder were carried forward and will be resolved in the next six-month reporting period.
The next reporting period is in April 2018 and we will be interested to see any trends emerging.
The CFFC’s monitoring project for 2017 was a review of the effectiveness of legal advice provided to intending residents. Not unexpectedly the review found that the quality of the advice was good but that some practitioners felt there were gaps in their knowledge about aspects of village life – e.g. how villages deal with residents forming or breaking relationships. The RVA has begun a series of articles in the Law Society’s Property journal to try to fill these gaps.
2018’s monitoring review is of the effectiveness of statutory supervisors 10 years after the CFFC’s last report on this topic, with an emphasis on the changes to the licensing regime controlled by the Financial Markets Authority. The report will determine the level of effectiveness of the supervision regime, and whether it is working in accordance with the RV Act’s purpose in protecting residents’ interests.
This research has begun, and a final report is due in May 2018.
The property market
We noted earlier that equity release in a buoyant property market is an important driver for village sales, and has been for several years. Of course, this is one factor why people chose to move to a village – others include a desire for security, companionship, somewhere warm and safe to live, and a pathway to care should that be needed.
However, history tells us that the property market runs in roughly eight year cycles and media articles about property prices in Auckland plateauing suggest the next cycle is underway. It’s eight years since the Global Financial Crisis of 2008 – 2009 so perhaps it’s time to think about what happened then and how operators can learn from that experience if the downturn becomes reality this time.
The RVA recently held a panel discussion with three experienced operators talking about strategies they employed 10 years ago. The principal impact was a slowing-down of sales times but the demand for villages still existed – it’s just that it took longer for intending residents to sell their homes for a price they were comfortable with and move in. Sales staff need to be trained to understand and respond to this, and in particular be aware of the Code of Practice’s requirements to communicate with the exiting residents’ families.
It was also important that villages keep advertising so their village remains top-of-mind for intending residents. The presentation of the unit is crucial and operators should pay particular attention to carpets, curtains, painting, kitchens and bathrooms.
The RVA has commissioned PWC to undertake some original research into the industry’s impact on the housing market’s endemic shortage of dwellings, as well as the impact on local and the national economy. This research is due in early 2018 and we expect to use it to show that villages continue to be part of the solution, not part of the problem.
Watch this space!
Finally, it’s fair to say the sector is looking forward to 2018 with confidence. Historically, we know that demand for retirement villages is likely to continue, despite any housing market downturn. The development pipeline, which at the end of 2016 stood at almost 16,000 villas, apartments and serviced apartments, reinforces that confidence, especially when the number of new residents is increasing faster than the natural increase of 75 year olds in the population as a whole. For example, in 2016 there were 11,650 more people aged 75+, an increase of 4% over the previous year, while the numbers of new residents increased by 2,419, a 7% growth in the same period (JLL RV White Paper 2017, p20). Around 12.4% of the +75 population now chose to live in a village, up from around 9% five years ago.
Making predictions is fraught with risk! But let’s hope 2018 proves to be another outstanding year for the sector.