The reason for moving into a village
The reason for moving into a village is to enhance your lifestyle
In this article I tackle the question of: “Which Village Should I Choose?”
It’s a question that many find difficult to answer, especially when they start trying to compare the wide variety of legal and financial arrangements available. In fact, we are fortunate to be living in Victoria where the Retirement Villages Act and the Retirement Villages Association have given you true freedom of choice without the pitfalls. Whether a village offers a lease, license or strata title, the Retirement Villages Act protects you because it establishes the basic relationship between a resident and the Village Owner.
However, there are some differences in the way villages use your money and it is really a matter of individual choice as to which system suits you best. In financial terms, the essential difference is that the more you invest at the start, the more you get back when you leave the village. However, this leaves less money in your pocket during your period in the village. On the other hand, the less money you invest at the start, the less you get back when you leave… but you have more money in your pocket in the meantime and less concerns about unexpected home ownership expenses!
These differences are largely determined by whether the owner is trying to achieve an early return on investment or through long term ownership of the village.
Strata title versus a lease or licence
So, what are some of the basic advantages or disadvantages of a strata title versus a lease or licence?
On the surface of it, a strata title unit may offer an opportunity for capital gain but the downside with this method is in the known and unknown costs you may face. With a strata title, substantial stamp duty is payable by the resident immediately on settlement for the unit whereas leasing or licensing attracts only nominal stamp duty. This can be quite a substantial expense. For example, stamp duty on a $250,000 unit is $8,770 compared with $0 to have a Balmoral lease document stamped!
Also, you shouldn’t assume that a retirement village strata title is the same as we normally know it in real estate. Generally, residents cannot deal freely in their strata title. It is likely to be subject to compulsory buy-back arrangements and restrictions on your right to sell or mortgage your unit.
Under a strata title you may be liable for repairs not only to your unit but also to your common property. For example, you may be forced to dig deep into your savings if the Body Corporate decides to repair the roads.
And I believe a lease arrangement is much simpler with one document spelling out the rights and obligations of both parties.
But the fact is, if you take account of all these differences, the total cost over time of a strata title or leased unit will be roughly the same. The decision about which way to go depends on the lifestyle you want to lead.
You have to decide whether you want to tie up all your money in a unit that may provide capital gain for your estate or have less money committed to a unit and more cash in the bank.
As one village residents so aptly put it: “The reason for moving into a village is to enhance your lifestyle, not your estate!”
With the latter option you have the freedom to use your money in whatever way you choose; invest it for the benefit of your children or spend it on something you really want to do. Other financial considerations include whether you or the owner are liable for repairs and maintenance, including refurbishment of a unit when it is vacated, contents insurance and rates and taxes. And you need to find out whether the weekly maintenance charge includes any or all of those items.
Balmoral is a member of the Retirement Village Association which has a policy of going beyond the strict disclosure requirements of the Retirement Villages Act in discussions with residents.
All member villages are only too happy to explain and provide details of all the variables.
So, the most important questions you should ask yourself are not whether you want a strata title or lease but:
- Can I afford the unit?
- Do I want money in my pocket now to enjoy?
- Considering the locality, amenities, accommodation and, most importantly, staff and atmosphere, which village do I like?