KEY POINTS:
Soaring profits, a looming baby boomer surge and hungry big investment funds looking for long-term, low-risk investments: the New Zealand retirement villages sector is bracing for a boom.
Any cowboys in the sector will next month have to grapple with new regulations designed to ensure the true cost
of village living is fully disclosed.
Norah Barlow, president of the Retirement Villages Association and chief executive of the third biggest operator, Summerset, told the Herald on Sunday this week that the changing face of many New Zealand neighbourhoods has been encouraging people to think about retirement villages.
"There are people sitting there now saying 'I've lacked a bit. I lack a bit in my neighbourhood'. People are saying 'I don't just want to be sitting here alone, what I want is an environment which is my old fashioned-type neighbourhood'. You start seeing that more. What villages offer is the fact that if something does happen there are people around to support you, people around to find out about it, people around to fix it."
The rise of the sector for the big investment fund managers has been accompanied by a shift in focus from property development to the continued operation of villages.
"I think one thing is not loads of money necessarily - scale does help," says Barlow.
"We used to see a lot of developers putting a few houses on a patch of land and saying 'this is a retirement village'.
"What we've got now is a lot more understanding that this is a product that people are buying. And as a product, it has to meet the needs and desires of its residents."
The same thing that attracted many residents to villages - long-term security - is attracting the big investors such as AMP, Macquaries and Babcock & Brown.
"The residents want security, but then so do these guys - they want a focused, secure-type investment, they don't expect returns that are very much higher than that of property. Yet they carry a whole operational risk that goes with it."
Barlow rates retirement village investments as "pretty low risk".
"Everyone struggles with it, to be honest, what kind of investment it is. The thing is - it's not pure property, the whole essence of it is property, you own the land, you have land values increasing and development, but when you throw in the operations you start throwing in all the people involvement - which all of a sudden throws a whole diversity into it.
"And that's much more of a ordinary business operational risk."
Planning villages that will attract the growing numbers of baby-boomers is the big challenge now, with high land prices making it difficult to build villa-style developments.
And a surge in the number of retired people in the next few decades is no guarantee of easy money, says Barlow.
"Sure the numbers are there, but it is making sure you provide what they want, because if you don't provide what those people want, it doesn't matter how many people there are.
"It has got to be better than living in your home. People are making choices between retirement villages, but the largest choice is between them and staying at home."
It is unlikely the religious and charitable organisations or other "not-for-profit" groups will continue running retirement villages, says Barlow.
"It's very hard for them. A lot of the reason is that it's very hard to have a mixed message - how many charities run the corner shops?
"Most of them are exiting, there are lots of reasons why. It was very hard for them to keep investing in their buildings, they wanted to spend the money on their charitable works."
Private enterprise was more inclined to understand the need to continually reinvest.
With a greater number of people retiring, a greater number of retirement village options will also have to be offered, says Barlow.
These will have to include inner-city options - probably high rises, and catering for those on lower incomes, perhaps with Housing NZ.
The greater variety of retirement villages is also likely to include some with greater care facilities that people only moved into when they were much older.
New Zealand's biggest listed aged-care provider, Ryman Healthcare, expects the future to bring good things, with predicted earnings growth of 15 per cent in each of the next five years.
Ryman's managing director Kevin Hickman said in the company's most recent annual report that the company - which now has a market capitalisation of $1.2 billion - was at a "new level of maturity" with a 49 per cent profit jump from the year before.
Developing new villages is needed for "accelerated growth" but three other revenue streams - resales, management fees and care fees were providing "intrinsic growth".
"This is what we call our tail, which provides a growth-on-growth effect going forward.
"Existing retirement village units are now reselling at a higher level, providing both a lift in resale gains and higher management fees," said Hickman.
Higher property prices mean that the amount of money retirement villages can earn by re-selling units to new residents is steadily increasing.
As retirement villages grow in both popularity and profitability, the law has failed to keep up with what most sell - not a piece of property, nor a lease, but a "right to occupy".
But the Retirement Villages Act, operational from May 1, will introduce a layer of Governmental oversight over the sale and purchasing of this unique kind of property right.
The Department of Building and Housing's regulatory policy group manager Suzanne Townsend said while the new legislation will put cost onto retirement village operators, it had been introduced fairly slowly.
"People often didn't understand what they had bought.
"Part of getting registered now is the need to design and provide for all residents a disclosure document that says what rights you have, what do you own, what happens when you leave, what kind of services you will get - all of the things people didn't necessarily know."
From May 1, all new retirement villages have to be registered before they can buy and sell the rights to occupy units.
From the start of November this year, all villages must have applied to be registered.
From May 1 next year, they will be unable to legally buy and sell rights to occupy unless registered.
Another provision in the new law is the introduction of a 15-day "cooling-off period" where someone can pull out of a contract for a retirement village should they change their mind.
A disputes resolution process has also been developed, with Metlifecare the first operator caught out in a case involving the disclosure of the true costs of refurbishing units.
Townsend says regulations make sure people signing up for retirement villages "knew exactly what they are getting".
"It is quite basic protection, but it is new for this industry.
"I think it's fair enough regulation, it's quite benign, but it will impose costs on some.
"We haven't tried to impose costs too quickly, but that's because they [retirement villages] are not all Rymans or Metlifecare.
"It's a form of consumer protection that reflects the different nature of it and the vulnerability of people who are in this market," said Townsend.
The new laws should give "status and credibility" to the good operators.
"This [will] by no means negatively impact every retirement village, there are some very good operators out there."
Village people
* Summerset was set up in 1994 and is New Zealand's third biggest retirement village operator, after Rymans and Metlifecare.
* Summerset has 1065 units, including villas, apartments and serviced units. It also has 374 rest home and hospital beds and 10 villages in the North Island with three villages - Manukau, Aotea and Napier - to be completed in the next two years.
* It is planning 10 more villages, to be finished in the next five years.
* There are currently about 25,000 New Zealanders living in more than 300 retirement villages.
* More and more charitable and religious-based operators are leaving the sector, which is now increasingly owned by the big investment funds.
