Personal Finance

Senior housing: Choices and trade-offs

Meera Siva | Updated on February 25, 2020 Published on February 25, 2020

Depending on your health condition, you have a choice of independent or assisted living. File Photo   -  The Hindu

Should you invest in a retirement community? Or are you better off as a lessee or a tenant?

If you are 50-plus, it is likely you have given some thought to where you will live a decade or two hence. Unlike in the past, you now have many senior living communities to select from, besides regular housing ones offering different levels of services. And, beyond buying a unit, you can also consider alternatives in keeping with your financial and lifestyle situation.

Available choices

Depending on your health condition, you have a choice of independent or assisted living. Independent communities are professionally maintained and offer recreational activities and basic medical help for active seniors. Assisted living caters to those needing varied levels of medical and living support. Known as continuous care retirement communities, these provide extra medical care and assistance such as physiotherapy, nursing and help with daily activities.

Active communities are popular with new retirees, and buying — an apartment or a villa — is the popular choice. You must pay upfront on a per square foot basis, and there are monthly payments for maintenance and services. You can sell the property at the prevailing market rate to anyone over the age of 50 or 55, depending on the rules. You can also rent it out, meeting the age and other requirements. It can also be bequeathed, but the age criteria must still be met to stay in the community.

Some senior projects also have a lease model. Here, you pay a refundable deposit, which is typically 60-70 per cent of the home value. You pay monthly fees for maintenance and services. The lease may be for a fixed number of years or have termination clauses triggered by an event. The legal heir or lessee can get back 85-90 per cent of the money paid after deductions that are based on the number of years for which the house is occupied. If the lease is terminated prematurely, there may be deductions based on the terms agreed upon.

You can also become a tenant in a retirement community by renting a property from the owners. Alternatively, you can rent it from the developer, through a lifetime agreement, by paying an initial deposit of 10-12 months’ rent.

Besides projects that are exclusively for seniors, some new developments offer retirement living as part of larger residential townships. The advantage in the latter is that the communities are bigger and offer a wider mix of residents.

Factors to consider

Usually, independent living units are available for sale, and the prices vary based on the location, size and amenities. Properties in assisted living communities are typically not sold and only offered on rent.

Either way, you must consider the location. For example, such projects are often located in remote areas that are far away from facilities such as hospitals. If you travel often, the transport costs may start to add up. So, you must choose a property that meets your lifestyle requirements within your budget.

In the case of outright purchase, pay attention to service levels, as you are locked in. For instance, there have been reports of healthcare assistance dwindling once the sale is made, as the developer has no incentive to continue offering services. A Moneylife Foundation study found cases of retirement homes not having even wheelchairs. Its survey of 340 residents showed that more than 50 per cent were unhappy with the overall services provided and 61 per cent were not satisfied with the medical services.

As lease and ownership involve long-term contracts, you need to examine the specific terms such as cost escalations to ensure they are not onerous. There is a lack of adequate regulatory oversight in this segment and it is imperative to seek the right support in understanding the agreement before signing it.

How to pick

With a lease model, the upfront cost is less, and you will have more money in hand for other expenses. You are still guaranteed a place to stay in. This can be a good choice if you are somewhat sure of the location, want stability and can trade off the property price appreciation for lower capital outgo and fewer hassles in selling the property.

Renting a home may seem like a hassle-free idea but you need to account for rent increases and the uncertainty of being asked to move. Opt for this if you prefer to avoid investing your savings in property and can manage the higher monthly cash outgo.

Buying a home is popular, as evidenced by the strong demand for properties in senior living communities. Also, as the infrastructure in the area develops over time, prices appreciate. These gains must, however, be weighed against the ‘responsibilities’ such as tax payments and managing tenants. Go for this if you have enough funds and the developer is trusted.

You must remember that senior home investment is less about real estate and more about service quality. And the financial decisions must be tilted towards risk mitigation rather than return maximisation.

The author is an independent financial consultant.

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Published on February 25, 2020
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