New Zealand senior living favours lease-like model

In common with other developed markets, New Zealand's senior housing sector includes a diversity of product and care provision to accommodate a variety of needs.

However, whatever the type they have opted for, most occupants effectively occupy their homes subject to an occupation right agreement, akin to a lease, from larger owner-operators.

Stand-alone retirement villages provide:

• independent living units, in the form of villas, townhouses or apartments
• serviced apartments that offer assisted living.

Stand-alone care facilities in turn provide 24-hour care, including:

• rest homes
• rest homes specialising in dementia care
• hospitals
• psychogeriatric units.

Co-located villages or facilities meanwhile provide different permutations of the above and may include care suites. Care suites generally provide residents with larger rooms and have more amenities than a standard care room, but come at an additional cost.

Operators of senior housing range from:

• companies listed on the New Zealand stock exchange
• multimillion-dollar corporations, e.g. British United Provident Association (BUPA), Stonepeak, Asia Pacific Village Group Limited – an entity owned by Sweden's EQT Infrastructure IV fund – and AGP, a Singapore-based investment fund, many but not all of which are listed on the New Zealand stock exchange
• high-net-worth private New Zealand-based operators that may own between three to eight villages across the country, to small-scale New Zealand-based private firms and an assortment of charitable or religious organisations.

The village is being developed by the Sanderson Group, a family-run business with a long history that focuses on high-net-worth retirees looking to enjoy their later years in luxury.

The first stage of construction commenced in 2019, and on completion the village will provide no fewer than 241 villas. An 80-bed aged-care facility is also under construction and due to open in May 2025.

The villas completed to date are designed to provide either two- or three-bedroom freestanding, single-storey, top-of-the-range homes, with internal access garaging surrounded by well-tended gardens.

Many of the units feature a cathedral ceiling in the living area and also include a scullery. Villas range in size between 148m² and 328m², which compares to an average retirement unit of approximately 113m² in New Zealand, all orientated north for maximum sun exposure.

The project also has an extensive 1,332m² of community and recreational facilities, which include a lounge, dining area, dance floor, library, bar, kitchen, billiards room and theatre, as well as an outdoor covered terrace with an artificial, all-weather bowling green.

Facilities in the health spa – a free-standing, extensive building of 406m² – include an indoor heated swimming pool as well as spa, gym, sauna and steam rooms, aerobics space, hairdresser and massage room.

Other amenities across the site include tennis and croquet courts, a hobby shed, an amphitheatre, a lake house with a wellness pavilion and a boardwalk that extends to a floating pontoon. There is motorhome parking and a second cafe on the road front which is open to the wider public.

In addition, there is an extensive water feature including a fountain, with the dual purpose of recreation and storm-water management. Given the rural setting, the Sanderson Group has built two water treatment plants on site, one dealing with wastewater and another for filtering and treating bore water.

Given the high quality and large unit sizes, prices are generally at the upper end of the market.

Where residents are unhappy with their decision to move into the village, the operator offers a money-back guarantee during their first six months.

According to CBRE data, there are currently 52,000 units, excluding rental units, in the New Zealand retirement village sector; among these, ORAs are by far the most widely used and accepted ownership model.

An ORA offers residents an exclusive right of occupation to a particular unit or apartment in a village as well as a right to use the community facilities in common with other residents.

The agreement requires a capital payment – that is, the purchase price – refundable on exit, less deductions including a deferred management fee. This is commonly known as a use now, pay later scheme.

The operator is responsible for marketing the unit on resale, including any refurbishment costs, and in most cases retains any capital gain.

This model has survived the test of time and is now underpinned by consumer protection legislation in the form of the Retirement Villages Act 2003, albeit this is currently subject to review.

Given the flexibility this offers operators to tailor individual offerings, enabling them to meet the needs of the target market, CBRE does not envisage any significant disruption to this approach over the medium term.

Rental accommodation for the elderly in New Zealand, meanwhile, is traditionally provided by councils in the form of pensioner flats.

Provision is also made by religious organisations and central government, the latter including Kāinga Ora, formerly Housing New Zealand, an agency that provides rental housing for those in need.

There are also a few small-scale private providers that operate a rental model for those aged 65 and older throughout the country, but these are the minority.

Features include:

• renewable energy sources, eco-friendly materials and energy-efficient systems
• mass timber construction – cross-laminated timber speeds up construction and reduces a building's carbon footprint
• prefabricated modular bathroom pods which enable quicker construction.

The Greenstar 6 rating ensures that buildings are not only environmentally friendly but also energy-efficient, offering a healthier and more comfortable lifestyle for residents.

Assistive technology has also been introduced to enhance the safety of residents. For instance, the Elsi Smart Floor system is being used to detect resident falls and alert carers who can provide immediate assistance. 

Rapidly escalating operational costs following a period of hyperinflation have also seen operator-funded weekly fee shortfalls increase, and in some cases have more than doubled in the space of 12–24 months.

Operator-funded weekly fee shortfalls are weekly fees that residents pay to cover daily running costs. Historically operators have run fixed fees for life, i.e. what is paid on day one will not change no matter how long a resident stays in a village.

However, as expenses have risen rapidly in the past few years, operators are responsible for any shortfalls, and are moving towards alternative approaches – for example, annual increases indexed to any change in the New Zealand Superannuation rate.

Likewise, although most of the aged care sector receives asset-tested support from central government, it has seen profit margins eroded by decades of chronic underfunding while struggling with cost control in a cost-of-living crisis.

Asset testing in New Zealand is a financial assessment that looks at income and assets to determine eligibility for benefits or subsidies.

To compensate, CBRE has seen an increasing drive by operators to charge users room premiums, although there does not appear to be any strong consumer resistance to this.

Irrespective of these challenges, New Zealand is like many OECD countries set to experience a major demographic shift that will result in a disproportionately elderly population in comparison to historical trends. This change provides significant opportunity for the sector to evolve further.