Short term ‘incentives’ no match for old-fashioned capital gain.
While other retirement operators rely solely on short term incentives, one nationwide group says letting residents pocket hundreds of thousands of dollars in capital gains leaves them better off long term.
Adam Yates, CEO of Tauranga-based Karaka Pines Villages, says his company’s model allows residents to retain most of their capital gain when they eventually sell their village home.
“We want to offer people a fair retirement and we think it’s only fair residents get the benefit of the capital gain in their home, not the village operator which is the case at many retirement communities,” he says.
Yates says all companies in the industry are suffering as many retirees looking to move into villages are having difficulty, or are delaying, selling their family homes in a tight housing market.
“It is tough out there at the moment because we and other operators are relying on people to sell their homes in order to get into a village,” he says. “A lot of potential residents are waiting to see if the market improves and values rise before making decisions - it’s like a bit of a crystal ball gazing.”
He says some village operators are running incentives in an effort to attract buyers and lighten their financial load. One is offering a $30,000 cash-back payment for people buying a new unit at participating villages, while another is giving away $10,000 worth of New World dollars for those signing up for an independent apartment or townhouse before the end of September.
To match this, Karaka Pines has introduced incentives at some of the eight villages it operates throughout New Zealand. At the Karaka Lifestyle Estate in Auckland, for example, it is offering cash-back of up to $25,000 and no fees for six months.
But Yates says what is even more important is being able to retain the bulk of their capital gain when selling.
“We want people to understand they need to look to the long term,” he says.
“While they might be getting $30,000 back now through an incentive, at Karaka Pines villages people also benefit when they leave. Their capital gain can amount to hundreds of thousands of dollars – depending on the amount of time they’ve lived in a village of course – and the majority of our people come to us for that reason.
“As well as providing all the facilities and security you get at other retirement communities, we also give our people financial security. This is important because it can be quite daunting moving into a village.”
For many residents, the appeal isn’t just financial security for themselves but the ability to pass on more of their home’s value to their families. A recent example of the capital gain benefit came with residents at the company’s Regency Park Estate in Rotorua who purchased a unit in June 2022 and were more than $80,000 better off than they would have been with a traditional operator.
Yates says that under a traditional model they would have lost at least 20% (10% per year), leaving them with only $400,000.
Karaka Pines residents pay two types of fees. One is a weekly fee covering the ongoing costs of running a village like insurance, rates, staff salaries and grounds maintenance.
Yates says this varies from village to village but is significantly lower than the average in retirement villages.
The other is a one-off facilities fee payable when residents sell and leave the village. This is set at 12.5% of the unit sale price for those on the variable weekly fee and 25% for those on the fixed fee.
Residents keep the balance of the capital gain.
Yates says residents are also required to meet the cost of refurbishing their village home when selling to an “as new” standard. This ensures it is left in a pristine condition for prospective buyers in the same way people do when selling their family home.
“This benefits the resident as they can get a higher sale price,” he says. Residents set the sale price and while Karaka Pines can sell it on their behalf, the company is happy for residents to do so themselves or use a real estate agent. Yates says it’s only fair for the resident to be in control of this. Karaka Pines operates eight villages - Roseland Park in Hamilton East, Kempton Park in Tauranga, Karaka Lifestyle Estate in Auckland, Karaka Pines Rototuna in Hamilton, Karaka Pines Regency Park in Rotorua, Woodcroft Estate in Christchurch, Karaka Pines Waihi Beach and Karaka Pines Papamoa in the Bay of Plenty.
In total it has 640 residents living in 415 occupied units across its eight villages.
For more information: karakapines.co.nz