Understanding the differences between a Land Lease Community and a Retirement Village 🏠📝
Downsizing can be exciting, but it’s essential to do your research and calculate costs. This article compares retirement villages and land lease communities, two main options with distinct financial arrangements.
A land lease community or over-50s lifestyle resort may look like a retirement village, but there are key differences. It’s crucial to do your homework and understand these differences—not just in lifestyle and amenities, but also in how the various contracts can impact your finances now and in the future.
Operators use various terms like “retirement village,” “over 55s community,” “gated community,” “lifestyle resort,” and “aged care.” Despite the variety, most fall into either Retirement Village or Land Lease Community categories, and the differences matter.
Carefully examine potential changes to ensure they enhance your life and fit your budget. Understanding the differences between a land lease community and a retirement village is a good starting point. We’ve provided a brief overview of these two options.
The choice between a Land Lease Community and a Retirement Village will depend on your financial priorities and lifestyle preferences. Land Lease Communities can offer more straightforward financial arrangements with fewer long-term commitments, while Retirement Villages provide a more service-rich environment at a cost that includes significant entry and exit fees.
What is a Land Lease Community?
Put simply, you own your home, not the land. One of the reasons why land lease communities are popular is the security of owning a luxurious new home at a price that is much less than buying a house and the land. Owners of “moveable dwellings” like trailers, caravans, or prefabricated cottages in a land lease community pay rent to the community manager for the land their homes occupy. Typically, these residents don’t have to pay stamp duty, body corporate costs, council rates, or entry/exit fees. The recurring site fee helps maintain the community’s infrastructure, amenities and facilities as well as other costs. In addition, some residents are eligible for rent assistance.
What is a Retirement Village?
Retirement villages offer different forms of tenancy. You can buy a unit in a strata scheme, sign a long-term lease, pay regular rent, or invest by purchasing shares. If the property is strata-titled, you might need to pay stamp duty and body corporate costs. A fixed monthly service charge covers community resource expenses. Additionally, retirement communities may charge entry and exit fees when residents move in or out.
Benefits of Land Lease Communities
Some of the immediate benefits of buying in a land lease community – no stamp duty, eligibility for rental assistance and reduced home operating costs – but there are other financial and social benefits that you should consider when making your downsizing decision.
Homeowners in land lease communities who hold an Australian pension, or a Department of Veterans’ Affairs card, may also be eligible for rental assistance. If you receive the age pension and live in a land lease community, you are likely eligible for this significant additional weekly payment. If you move to a retirement village, it is likely that you will only be eligible if your entry (or ‘incoming’ fee) is less than $214,500 or if your village is a rental village only.
Simplified contracts
The primary way land lease over-50s lifestyle communities differ from retirement villages is in their financial structure. Land lease communities have two simple contracts:
- A contract to purchase your own home
- A contract to pay a modest weekly site rental
- Transparent fee structure
Downsizing financial benefits
- To help alleviate Australia’s housing crisis and to reduce the burden on the aged care system, the Federal Government has introduced incentives for older adults to downsize. One of these incentives is excluding the proceeds to the family home from assets when calculating the age pension.
- Couples can add up to $600,000 to their superannuation from the proceeds of the sale of the family home, and this also includes those over the age of 70 who are otherwise prevented from adding to their superannuation.
Financial Benefits
- Ability to access Commonwealth Government Rental Assistance for over 65’s
- No stamp duty on the purchase of manufactures homes
- No body corporate fees
- No council fees
- More affordable entry prices
- No Entry / Exit fees or Deferred Management Fees (see example of DMF below in blue box)
- No additional rates, taxes or Capex sinking fund contributions
- Keep your capital gains (whilst some retirement village operators charge a capital gains fee on the sale of your home (which can be between 35% – 50% of the capital gains your property has achieved over time)
Ownership
- Homes are fully owned by the resident with greater flexibility for modifications or home improvements. In most cases, internal modifications or improvements are fine and external (within reason) but always check your agreement as you may need approval from the owners or managers for external changes, especially if the change is significant.
Community Focus
- These communities typically offer a vibrant, active lifestyle with a strong sense of independence. The culture often revolves around shared interests and active living, with facilities and clubs catering to hobbies and social engagement. Community events, clubs, and social gatherings are common, fostering a sense of belonging and mutual support among residents.
Care Services
- While Land Lease Communities are designed for independent living, many are located near healthcare services and may offer access to home care providers. This arrangement allows residents to arrange for personal or medical care services as needed, maintaining their independence while having the option to receive care in their homes.
Other popular aspects of land lease communities include:
- Social and community benefits
- Security and safety it affords
- Facilities and activities it provides access to
- Friendships they develop with neighbours of similar age and circumstances
- Physical security and safety of a gated community with on-site staff
- Availability of organised social activities and services
- Access to shared areas or facilities such as pools, club houses, and gardens
- Freedom from maintenance and service tasks (e.g. lawn mowing, maintenance of shared facilities)
- Affordability in terms of upfront purchase costs and ongoing living costs
- Pleasant and convenient locations
- Independence of the lifestyle offered
Benefits of Retirement Villages
Living in a retirement village comes with many benefits, including longer independence, connection and community, convenience and flexibility, enhanced safety and security, and better access to health services. However, before committing to a retirement village, it’s best to assess the contract and fees critically as retirement villages can often have complex contracts with many different types of fees.
Living in a retirement village is a popular choice for seniors seeking care and community. Here are some advantages:
- Retirement villages offer various tenancy agreements.
- They typically provide a guaranteed buyback option.
- These communities promote an active lifestyle with opportunities for social connection and recreation, often featuring amenities like swimming pools, gyms, bowling greens, and community rooms.
- Retirement villages are designed to be low maintenance, reducing the burden of upkeep.
- They aim to support independent living for as long as possible, with features such as wheelchair and walker accessibility, and homes fitted with handrails and safety aids.
- Retirement villages often provide a high level of security for residents.
- Many are partnered with or located near aged care residences, making transitions smoother if needed.
Community living
- Companionship: Retirement villages foster a sense of community, allowing seniors to enjoy companionship and an active lifestyle.
- Shared Amenities: Residents can share various amenities offered by the village, reducing feelings of isolation.
Convenience
- Accessibility: Retirement villages are often located near public transport, shopping centers, healthcare, lifestyle, and community facilities.
Save time on chores
- Low-Maintenance Homes: Accommodation in retirement villages requires less cleaning and maintenance.
- Home Care Support: Many villages offer additional home care support, which may come at an extra cost. You might also be eligible for government home care support.
Onsite support services
- Extra Care: Skilled nurses and necessary amenities are available onsite when additional daily care is needed.
Safety
- Secure Environment: Most retirement communities are gated and guarded, ensuring the safety of your home.
- Maintenance: The village operator takes care of your home when you are away.
- Ease of Movement: Retirement units are typically designed without stairs, making it easier for seniors to move around.
Flexibility
- Independent Living: Most communities offer independent living units while providing essential services for residents of all ages.
- Aged Care: Aged care can be easily arranged, and some retirement villages are located next to residential care homes.
Always read the retirement village terms and conditions carefully before signing. You may need to spend time and money bringing your home to ‘as new’ condition before selling it, or pay the resort operator to do it for you.
Before deciding to buy into a retirement village, thoroughly review the contract terms, including any fees. Seek advice from a financial advisor or legal professional if you have any questions or concerns. This will help you make an informed decision about whether a retirement village is right for you and choose one that fits your needs and budget.
Choosing between the two community types often hinges on lifestyle preferences and anticipated care needs. Those who prioritise independence and an active lifestyle tend to favor Land Lease Communities, whereas individuals seeking a mix of community engagement and accessible care services often opt for Retirement Villages.
So when deciding where to spend your retirement years, you should take your time to research and carefully look at the options available. With many differences within each category, the process can seem daunting. It might be helpful to involve your grown children or other family members in the decision-making process.
Understanding the financial obligations of your chosen retirement living option is crucial. The potential benefits of owning versus leasing, for example, might be balanced by other limitations. Therefore, it’s important to get a complete picture from your provider to make the right choice.
Additionally, consider questions about rules and regulations regarding visitors, pets, subletting, upkeep, fee increases, and utilities.
Exit fees – also known as Deferred Management Fees (DMF) explained
As the name suggests, deferred management fees (known as DMFs) are maintenance and management charges that are levied when the property is sold. Deferred Management Fees can be very complicated and may include one-off and/or annual charges over a specific period of time, for example 10 years.
These fees are calculated as a percentage of the price of the unit when it is sold. This can vary between operators and the length of time you live at the property. Typically, if you live in a retirement village for only one year, the deferred management fee is ten percent. If you live there for three years or more, the fee jumps to 35 percent.
For example, if your retirement home sells for $500,000 and you’ve lived there for one year, the deferred management fee is $50,000 and you receive $450,000.
If you’ve lived in the home for four years or more, the fee is calculated at 35 percent which means the operator takes $175,000, leaving you with $325,000 from the sale.
According to Property Council of Australia research, the average length of tenure in a retirement village is 7.5 years.
Also, it’s important to examine your capital gain entitlement carefully as you may only get part back or possibly none at all; this could mean you suffer a significant capital loss. You may also have to pay an amount for refurbishment of the unit, such as new carpet or paint.
Tip: In some states, such as Victoria and SA, there can be special rules so that you will receive your entitlements after a certain period, if you need to go to an aged care facility and pay an accommodation bond – even if your unit hasn’t sold. This will depend on your contract.
