"It's a model that reflects the direction we have been heading in over the last few years - one which supports the idea that the elderly are not dying of illness and disease but loneliness, helplessness and boredom," Mrs Jeffs said.
The deal was sealed following consultation with the community and geotechnical examination.
Resource consent to develop the site is nearing completion. The development will be partly funded by Rotorua Energy Charitable Trust which last week pledged $750,000 towards the project.
"Whare Aroha CARE is extremely thankful for this contribution which will give the Rotorua community access to world-leading dementia care."
Mrs Jeffs said the Eden Alternative philosophy aimed to improve the well-being of residents by providing companionship, allowing people to give care as well as receive it, and an environment filled with spontaneity and variety.
The design would be revealed onsite at an open day early in 2015 and the village, which could eventually cater for up to 200 residents, was expected to open by May 2017. Whare Aroha CARE is owned and managed by Rotorua Continuing Care Trust.