73% of retirement village operators surveyed in the 2022 PwC Property Council Retirement Census did not offer residents an opportunity to share in any capital gains or capital losses, more than triple the number in 2017.

The number of retirement villages no longer offering capitals gains in a Deferred Management Fee (DMF) is increasing rapidly. However, village operators are offering a number of DMF contracts that provide certainty over price.

For example, leading retirement village operator Aveo Group is offering three different types of contracts entitled Now, Later and Bond.

The Now payment option gives the prospective resident and their family a discounted management fee if they pay upfront. This means that there is no need to pay a DMF when the resident leaves.

The Later payment option affords the prospective resident the benefit of deferring their management fee until they leave their community. The resident makes a one-time entry payment of the listed property price upon moving in and the DMF is capped at 35% of the entry price.

The Bond allows the prospective client to pay a premium entry fee, along with a non-refundable 3% establishment fee, when entering the village. Aveo Group guarantees the resident the premium entry payment will be returned when the resident leaves.

These payment options give potential residents the ability to pay in a way that suits them – and provide clarity about the true price of living in a retirement village.

This model also allows residents the option to move between villages run by the same operator without restarting their exit fee calculation, which can happen as residents move closer to family or their circumstances change.

The move away from contracts that share capital gain with residents may appear to be a huge disadvantage, but it’s important to understand the distinct differences between retirement villages and the broader property market.

The Census also shows that the average price of a two-bedroom unit increased by $32,000 to $516,000, an increase of 6% for the year. The price increased from $398,000 in 2016, with no negative years, so retirement village units are averaging a gain of about 4% per annum.

Retirement village contracts that give you some or all of the capital gain normally require you to meet some or all of the costs associated with achieving it such as renovation costs, marketing expenses and selling fees.

The Census showed 49% of renovations for retirement village units more than 15 years old cost at least $40,000 with 6% exceeding $80,000.

This is often where disputes take place and removing this uncertainty is a win for both village operators and residents.