Knowing the financial consequences
The purchase cost when entering a village is not the only significant cost. In addition, residents may not be entitled to any capital gain when they leave. There are living costs and usually costs when leaving a village. These can include deductions from the original price paid for a unit.
This table shows the net return a resident could get when selling a ‘licence to occupy’ unit in a retirement village two, five, and 10 years after purchasing a unit for $300,000. It shows the difference between the resale price and the actual return the resident gets in the hand.
| Retirement village unit purchased for $300,000 today | ||||
|---|---|---|---|---|
| 2 years on | 5 years on | 10 years on | ||
| Unit worth | $330,000 | $385,000 | $490,000 | |
| Capital sum deduction | $24,000 | $60,000 | $60,000 | |
| Refurbishment costs | $4,000 | $7,000 | $12,000 | |
| Sales commission | $6,000 | $6,000 | $6,000 | |
| Service charges for 6 months | $3,000 | $5,000 | $9,000 | |
| Total deductions | $37,000 | $78,000 | $87,000 | |
| Return to former resident | $263,000 | $222,000 | $213,000 | |
| Difference | $67,000 | $163,000 | $277,000 | |
| In today's dollars | ||||
| Return to former resident | $250,000 | $199,000 | $173,000 | |
| Difference | $64,000 | $146,000 | $225,000 | |
As so many things vary between villages, it’s not possible to provide a typical example. However, the figures in this table are based on the following circumstances, which are quite common:
- The resident not receiving any share of the capital gain
- The following deductions from the original purchase price
- A capital sum deduction of 4% p.a. for a maximum of five years
- The costs of refurbishment, sales commission, and six months of service charges from the time the resident left and the unit was resold
- A sales commission figure of 2% of the original purchase price
Visit Costs for more information about the costs of entering, living in and leaving a village.
The figures in the table
- 1. These figures are based on the value of the units increasing by 5% per annum.
- 2. Property values are rounded to the nearest $5,000 while all other figures are rounded to the nearest $1,000.
- 3. An inflation rate of 2% per annum was used to calculate the today’s dollars figures.
- 4. ‘Today’s dollars’ means that any amount you pay or receive in the future will have the same buying power as this many dollars today.
For example, if you could buy something worth $1000 now, in 10 years time, you would need $1220 (“nominal dollars”) to buy that same thing (assuming 2% inflation). The $1220 nominal dollars in 10 years time is equivalent to $1000 today’s dollars. This means that the actual dollar amounts that you pay or receive are likely to be more than the figure quoted here, but it will have the same current buying power.
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