Life is a series of stages. Often, our priorities around what we want in a home shift as we move through these different stages. Single adults, couples, parents of young children, parents of teenagers, and retirees can all have vastly different criteria around what’s ideal for them. In other words, as our needs change, so do our home preferences.
Our society is deeply familiar with the conventional ownership structure – you purchase a small unit or townhouse, spend years striving to pay it off, accumulate equity, and then upgrade to a larger house. Repeat.
We become locked in this cycle of purchasing, working, paying off debt and upgrading. Amidst all this, burdens like home maintenance, rates, insurance, etc., drain our funds and time. Many people in their younger years are both time-poor and cash-strapped.
Retirement presents an opportunity to live differently and break this cycle. This is where the concept of ‘Licence to Occupy’ (LTO) comes into play. It offers a unique living structure that deviates from the typical owner-occupier cycle and prioritises lifestyle above all. With LTO, many retirees see an opportunity to truly enjoy life without the usual constraints of homeownership.
Ditching the sense of ownership might seem daunting, especially after we’ve been conditioned to aspire to it all our lives. Many people have not ever considered the concept of “licence to occupy” until they reach retirement. It’s an interesting phrase. As one resident of a licence to occupy retirement home put it, “It takes away the sense of ownership, but in the end, do we really own anything?”
According to Village News, “Licences to occupy are the most common way to live in a retirement village in New Zealand”. But it’s a way of living that has generated a lot of controversy over the years. So, what makes people choose this lifestyle? Is what you gain from living in one of these communities greater than what you lose in capital gains?
We talk to couples who made this choice, offering insights for people thinking about doing the same. Here’s what they told us.
Your buying into a lifestyle
“You’re buying into a lifestyle”, explains Jim, a resident. “And all the facilities we’ve got here, like the bowling green, the gymnasium, the swimming pool, the sauna, the movie theatre, the library, the cafe….” It’s all here to be enjoyed, and it’s so easy.
“It’s like being in a hotel at Surfers. You walk in and go wow, ‘this is lovely’. It’s like living there”.
Maggie
What struck many residents we spoke with was the range of activities, classes, and facilities on offer, at no additional cost. It gave them the freedom to live a vibrant lifestyle without constraints. Some seniors limit pursuits to just the basics because it’s easier than getting out. Budgetary concerns can also weigh heavily on their decision to pursue hobbies and activities. Lifestyle villages, however, provide access to these activities without requiring membership fees or travel.
As we age, it’s easy to fall into a rut and not participate in activities as much. This can impact cognitive and emotional well-being. LTO villages can rekindle a spirit of adventure because they make it easy to stay active and pursue interests. Here is an example of the types of activities you can expect in such a village – check them out here.
You’re part of a community that’s connected
Remember the time when you knew your neighbours? When you felt comfortable enough to pop over for a cup of sugar or to borrow a tool? Back in the day, neighbours felt like family. They looked out for one another and connected on a level that’s hard to find these days.
Several residents spoke of a shift in their suburb over the past 20-30 years, a disconnectedness. In today’s world, it’s not uncommon to live amongst strangers. When you’re working and raising a family, that may not bother you, but as you get older, you may feel isolated and lonely.
Many of the residents we talked to missed the days when they could wave hello to someone on the street and know their name. Being familiar with people around you brings a sense of comfort. Retirement villages can provide that sense of belonging.
“You have a shared outlook on life, a shared vision, and camaraderie that you don’t get out in the suburbs. It’s the same sort of thing that you get by belonging to a club. You never get lonely. There’s so much to do”.
June
You have certainty about budgeting
One of the most significant upsides of licence to occupy is the certainty it brings around financial planning. The couples we spoke with noted that the terms, conditions, and charges were agreed upon at the onset, thus removing the uncertainty around financial planning. The fees are fixed for life, giving residents a clear understanding of how much they need to budget.
However, not all retirement villages provide fixed fees for life, so it’s really important to check this at the onset.
“We added up our rates, our water rates, insurance, tree trimming, gardening etc. and you don’t have to worry about it – worry about who is ripping you off. And you don’t have to worry about it [costs] going up”.
Dave
Many people are concerned about the cost of living, but for those who are no longer working it can be an even greater worry. Take rates for example. As part of a plan to plug a $325 million budget hole, Auckland Council increased rates by 7.7 per cent earlier this year. Next year, those rates could nearly double from a starting point of 13.75 per cent, as the council seeks to balance its books. Source: RNZ, Possible rates hike for Auckland will make the city even more unaffordable, residents say. Aucklanders could also face a 25.8% rise in Watercare chargers.
“You don’t have to pay rates, water rates, gym memberships, maintenance – all of those costs keep going up, but our fee is fixed for life. That’s a huge relief when you’re on a fixed income”.
Jean“We are saving more money here than we were at home. Your rates aren’t going up. When something needs fixing you put a form in and it’s fixed within a day”.
Mary
As the costs of rates, water rates, gym memberships, and maintenance continue to rise, having fixed fees for life provides long-term stability and relief.
You can relax and let go of worries
Imagine a world where everything is taken care of for you. On-site nurses, gated security, maintenance services, and gardening assistance provide a worry-free living experience. You can get support with meals, housekeeping and even transport. Again, this is all part of the lifestyle you are buying into with lifestyle villages like Settlers.
There is peace of mind that comes from knowing your needs are being met without worrying about how much it will cost you. Residents report feeling free of undue pressure, and free to do more of what they want. Which leads into the next point.
You can free up time
If you don’t have to worry about home maintenance and gardening, you can focus your energy on doing what you love.
“As you get older you have less energy but you now have more time. You can use the energy to do the things you want to do, rather than the things you have to do”.
“Four years ago my husband had a stroke. This is another thing that coming in here gives us – the opportunity for nursing, and you’ve got the alarms if anything happens”.
Mary“We have 5 call buttons in our apartment. I pushed one by mistake once and the nurse was up in seconds!”
June
You can free up cash
When you sell a home and buy into an LTO retirement home, depending on the value of the home you’re selling and the equity you have in it, it can often free up quite a bit of cash. This cash enables you to enjoy your retirement comfortably knowing that you have cash in the bank to fall back on, travel and so on.
“We could provide the children with an early inheritance and add another investment property to our portfolio”.
Jim
To sum up, there are many advantages to choosing the licence to occupy communities, as shared by couples who have made that decision. These include buying into a certain lifestyle, peace of mind, saving costs, accessing equity, and obtaining greater budgeting certainty.
However, it’s important to note that agreements can vary significantly, so it’s crucial to seek legal advice. Take for example fees. Not all retirement communities offer fixed fees, and that’s an important consideration.
It’s also important to understand that you’re not buying real estate but rather a form of licence to reside. By itself, that can be a difficult concept to grasp.
Yes, the loss of capital gains is a consideration, but for so many of the couples who have made the choice to forgo that, it was worth it for the lifestyle they’ve gained. Some even took their equity and invested in investment properties in order to maintain some form of capital gains, so they got the best of both worlds.
Disclaimer: Please note that we are not retirement law experts. The content of this blog is for informational purposes only and provides perspectives of a small sample of retirement village residents. You should consult a lawyer before making the decision to move to a licence to occupy the village.
