Retirement villages that allow residents to benefit from capital gains are growing in popularity. This article explains how these models work, how they differ from the traditional models, and some key advantages and trade-offs to be aware of when comparing villages.
What is a capital gains model?
The capital gains model represents an alternative to the traditional retirement village structure. In this model, residents are entitled to retain a portion or all of the capital appreciation realised when their home within the village is relicensed.
Legal framework
In New Zealand, most capital gains retirement villages operate under the same core legal structure as other villages.
Occupation Right Agreement (ORA)
Residents typically still sign an Occupation Right Agreement which is governed by the Retirement Villages Act 2003. This ensures residents have the same rights of tenure and protections under the Act.
The key differences
While the legal framework is similar, the financial and operational terms are modified. These differences typically relate to:
- Capital gains or losses: how the appreciation or depreciation of the home is allocated when it is re-licensed.
- Refurbishment costs: who is responsible for the costs associated with preparing the home for the next resident, either the operator or the outgoing resident.
- Sales process: who is responsible for setting the sale price and managing the process of finding a new resident.
Types of capital gains models
Capital gains villages generally use one of two financial approaches that determine how any increase in the home’s value is shared.
Shared-gains models
In a shared gains model, any capital appreciation is split between the resident and the operator according to an agreed formula. Similar to a traditional model where no gains are shared, the operator usually oversees the resale process.
Full-gains models
In a full gains model, residents retain all of the capital increase when the home is relicensed.
Because they keep the full uplift in value, residents usually take on more of the practical responsibilities associated with resale, including organising refurbishment and being involved in the process of finding a new resident.
Examples of operators offering capital gains models
Vivid Living (shared-gains model)
Vivid Living, part of the Fletcher Building Group, uses a model where residents keep 50% of any capital gains when their home is resold. If the home hasn’t sold within four months, Vivid Living offers a buyback at the same price.
“The financial model is deliberately simple. Residents know upfront what the fee will be and what share of the capital gains they retain, and there are no surprises at exit,” says General Manager Gemma Gloyne.
Karaka Pines (full-gains model)
Karaka Pines offers a model where residents keep 100% of the capital gains when their home is sold.
To support this model, residents arrange refurbishment to an “as-new” standard before resale and have the ability to set their own sale price.
“Because residents keep 100% of the capital gain, they are responsible for the refurbishment cost of their unit. This however does allow for a higher sale price for the resident who retains the gain” - says Stuart Cheesemen General Manager.
Freedom Lifestyle Villages (full-gains model)
Freedom Lifestyle Villages operate a model where, when it comes time to sell, residents do so at true market value with the resident setting the price and retaining any capital gain. A capped exit fee applies, and the final sale price is subject to prevailing market conditions.
At a glance: How these models differ
| Operator | Capital Gains / Losses | Refurbishment | Resale |
|---|---|---|---|
| Traditional model | Operator keeps 100% | Managed by operator, refurbishment costs included within DMF. | Managed by operator |
| Vivid Living | 50% shared | Managed by the operator, with costs passed on to the resident. | Managed by operator |
| Karaka Pines | 100% resident keeps | Resident can elect to appoint the village to arrange or do it themselves. | Resident can elect to appoint the village to arrange or do it themselves. |
| Freedom Lifestyle Villages | 100% resident keeps | Resident arranges | Resident arranges |
Pros and cons of capital gains models
Capital gains models can offer financial advantages, but they can also involve extra responsibilities. The table below summarises common benefits and considerations to help you make an informed decision.
| Potential advantages | Potential considerations |
|---|---|
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Checklist: Questions to ask before choosing a capital gains village
When comparing villages, consider asking:
- What share of capital gains — if any — do residents keep?
- Who is responsible for refurbishment, and what does “as-new” mean in practice?
- What happens if the market goes down and the sale price is lower than expected?
Always seek independent legal and financial advice before signing a retirement village contract.
In summary
Capital gains models make up a small but growing part of New Zealand’s retirement village sector. They offer an alternative for people who want more involvement in the resale process and the opportunity to retain equity. These models can provide financial benefits, but they also come with added responsibilities and potential exposure to the property market.
Before deciding, compare several operators, review disclosure statements carefully and seek independent advice. The right choice will depend on your preferences and long-term financial goals.
Leaving the village: How does the sales process work?
