The latest JLL New Zealand Retirement Village Database research shows that with rapid growth comes certain risks for New Zealand’s retirement village industry. INsite asks Retirement Villages Association (RVA) executive director John Collyns to discuss these risks.

The recent JLL report shows that New Zealand’s retirement village industry is growing rapidly through new developments and expansion to existing villages. It also shows that there are risks associated with this growth. It identifies these as an oversupply in the Auckland region; the holding costs of land banking and miscalculations in location and capital investment decisions; negative publicity regarding the ORA (occupation right agreement); risks from the general housing market affecting potential village residents’ equity holdings; and small operators struggling while larger operators are dominating the growth.

INsite asked RVA executive director John Collyns to discuss each of these risks in turn.

Auckland oversupply

Collyns: “So far as Auckland “oversupply” is concerned, it’s important to note, as JLL does on p.25-26, that the penetration rate there has increased from 12.4% in 2012 to 15.1% over a five year period. We agree that achieving an additional 4%, which would be required to take up the units in the development pipeline, is realistic. In any case, if there’s another housing slowdown operators will defer building until the demand improves again.”

Land banking

Collyns: “Land banking is a safeguard that valuable and scarce land in the right place is held for future development. One of the major issues facing the industry is the availability of land in the right place. Miscalculations are a matter for individual operators and financiers to take into account; in any case land can always be sold if it’s not right for retirement villages.”

Misunderstanding around the ORA and DMF

Collyns: “The RV Act, regulations and Code require intending residents to have proper legal advice so the risk of people buying something they don’t understand is significantly reduced. Negative publicity about the DMF usually comes from people who don’t understand the terms and conditions. The steady increase in demand for villages suggests the model is robust. Despite that, operators are continually refining their offering to respond to market demands and changes so we expect that the DMF, with any market-led refinements, will continue.”

Housing market

Collyns: “It’s certainly true that realising decent amounts of equity release on selling the family home is a key factor in a decision to move to a village. A report from CRESA outlines the range of equity release people are getting and compares the outcome of downsizing to a smaller own-your-own unit (assuming one can be found) and moving to a retirement village. The village wins hands-down in every case. The ratio between the ORA price and the average freehold home sale price in the area is a key part of that, so in general, we would expect to see incoming residents realising some equity, even if it’s not as much as they might like.”

Small operators

Collyns: “Every village is different. What works for some people in a corporate village may not work for someone who prefers the ethos of a not-for-profit village. The latter traditionally have extensive waiting lists, and, as a report from CBRE shows, they are also active in the building space.”

As well as the risks, the JLL report identifies a number of positive industry trends including operators pushing to get new units to market; interest from international investors and first-time developers; growth in unit numbers remaining a strong focus for larger village operators; advancements in village development techniques and analysis; the positive impacts the industry is having on the general housing market.

At a glance: JLL report in numbers

  • Last year, retirement village unit numbers increased from 26,307 in 2015 to 28,168;
  • Approximately 36,618 people live in retirement villages – about 12.4 per cent of people aged 75-plus;
  • Since 2012, 40 new villages have been built;
  • 15,847 new village units are in the planning pipeline;
  • 56 per cent of growth will be in new villages; 44 per cent will be new units in existing retirement villages.
  • The five largest operators are Ryman Healthcare, with 19 per cent of the market, Metlifecare (14 per cent), Summerset (9 per cent), Bupa (5 per cent) and Oceania (4 per cent).

The JLL whitepaper, which discusses the research can be found here: http://www.jll.nz/new-zealand/en-gb/research/400/jll-nz-retirement-village-whitepaper-2017.

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