Listed finance company Senior Trust’s Retirement Village Income Generator, which tends to fly under the radar, is leading the charge in lending to retirement village operators delivering high quality units and facilities at the premium end of the market.

Investors can pony up as little as $1000 and then add multiples of the same amount to invest with Senior Trust. It lends in a sector, which despite a decade of significant growth, is still working at full stretch to keep pace with demand from an ageing population.

Senior Trust executive director John Jackson, who has been involved in investment in the sector for 22 years, believes the recent surge in retirement village demand reflects the concerns of many senior New Zealanders about social isolation, security, and a desire for a good quality of life in their golden years.

“Investors are putting their money into an orderly and well-regulated sector, with a proven investment track record,” he says.

“Developers often preferred to seek funding from a specialist because it could provide continuity of funding as the development progressed whereas some banks were more prescriptive.”

The senior living sector is working hard to keep up with demand from our ageing population.

Expansion is ongoing with many existing villages being extended and refurbished and new villages coming online.

STRONG GROWTH

Global real estate agency JLL’s New Zealand 2022 Retirement Villages Market Review and Aged Care Report shows the number of retirement units in the past decade increased 71 per cent, with 37,489 units spread across 425 villages nationwide, accommodating an estimated 48,736 residents.

While there are 345,960 New Zealanders aged 75, this will reach 832,810 by 2048 and 24,413 new retirement units will be needed by 2033.

The World Economic Forum (WEF) estimates the number of elderly people per 100 working-age people will nearly triple, from 20 in 1980, to 58 in 2060.

Globally, the working-age population will see a 10 per cent drop by 2060. For New Zealand, the 65-plus population share is 6 per cent; this is projected to rise to 9 per cent in the late 2020s.

Although this country is not among the top three countries for oldest populations or fastest ageing populations, it still has an “inverse pyramid”, which means that its 75-plus years population bracket is the biggest, while its 12-18 years age bracket is the smallest.

With retirement village demand boosters set to become even stronger, JLL NZ’s research head, Gavin Read, says the pressure is on for operators to deliver their development pipeline, and then some.

The six biggest retirement village operators continue to dominate the sector: Ryman, Metlifecare, Summerset, Bupa, Oceania and Arvida. JLL’s report shows between them they hold an estimated 47 per cent of villages throughout the country and 65 per cent of units.

Development has started on about 12,238 units, leaving a shortfall of 12,306. Market challenges including the global pandemic, rising inflation, labour shortages and supply chain constraints continue to put pressure on the industry. The increasingly diverse ethnicity of residents means more new units will be needed.

Expansion is ongoing with several existing villages being extended and refurbished and new villages coming online.

There are 216 villages in the development pipeline, 129 (60 per cent) are existing villages with expansion or refurbishment plans and 87 (40 per cent) are new villages.

Together, they have capacity to deliver a total of approximately 20,746 retirement village units. During the past five years, 1864 units on average have been delivered.

SECTOR CHALLENGE

The JLL report says the identified development pipeline suggests this trend is continuing and the challenge for the sector is to ensure units are delivered in the right locations to meet future residents’ demand and needs.

The significant increase in unit numbers compared with the overall increase in village numbers reflects the fact modern villages are generally larger in scale and intensification (through extension or refurbishment) than existing villages.

The retirement market segment Senior Trust operates in is at the smaller premium end.

Jackson says this offers investors security over soundly located, well run retirement villages, giving investors an attractive, steady income return.

Investor funds are secured by way of a mortgage and returns are underpinned by interest earned on the loan portfolio.

“The operators we invest in are registered retirement villages and they are also required to adhere to the Retirement Villages Act 2003.

“The regulatory framework is a contributing factor to the stability of the retirement village sector and the capacity of the retirement villages to generate long-term, steady income derived from solid real property assets.”

Jackson says unlike other industries, senior living growth has been sustained despite Covid disruptions and share market downturns.

It monitors the investment markets constantly to ensure it remains competitive.

Senior Trust returns have historically delivered one-and-a-half to two times the return of a bank deposit. In the past three months it has increased its distribution rate twice, to now stand at 7 per cent a year.

Senior Trust lends exclusively to the senior living sector. It has been deeply involved in the sector since 1998 and has a strong track record helping investors enjoy attractive returns by funding the building, expansion and operation of facilities.

“In some areas there is an oversupply of retirement villages. There are still good investment opportunities in good locations with good operators,” Jackson says.

“The things we look for are a good location with evidence of under-supply and an operator with a good track record and a financial commitment to the village.”

‘The things we look for are a good location with evidence of under-supply and an operator with a good track record’ JOHN JACKSON

PRIME MOTIVATORS

Jackson says the retirement industry has unquestionably benefited from the go early, go hard Covid-19 response and has come through relatively unscathed, with an upswing in enquiries.

However, the slowing residential market will now impact on the take-up of new retirement village dwellings as most incoming residents have to sell the family home first.

“However, the prime motivators for a shift to a retirement village remain as strong as ever. The rising cost of living which heavily impacts seniors managing on fixed incomes is becoming an increasingly compelling factor in the trend amongst seniors to downsize and release equity out of their residential asset.”

Another significant trend, he says, is the growing demand in the regions and well-located urban areas for independent villages with a less corporate, more intimate, and more innovative experience and service. “Many independent operators offer elevated levels of facilities and services in stunning locations.”

The Auckland region accounts for most retirement villages with an estimated 23 per cent of the national village stock.