Capital gain

Retirement villages generally pay little or no capital gain if a resident sells. The few who do return some or all of the capital gain tend to be charitable organisations.

The Retirement Villages Association's quality manager Philippa Blair says that, because many villages have waiting lists, there is little or no incentive for them to share capital gain with residents.

Village operators also claim they don't share the capital gain because villages are self-funding and the money is needed to upgrade facilities. And the Association has no powers to force its members to share capital gain because they're a lobby group for the industry.

Worse still, while operators are pocketing the profits of capital gain, some still expect residents to meet the capital loss if the market value drops.

Christchurch's Cashmere Court and Auckland's Rosehill Gardens are two villages that hold residents liable for the difference if the unit sells for less than they paid for it - but both require the consent of the outgoing resident. Rosehill Gardens tells us such a clause is common in the industry.

Operators' profit

It's clear that retirement village operators are profiting from capital gain.

Take the Ryman Group, which runs a chain of retirement villages in New Zealand. Last financial year the company recorded a profit of $35.1 million, an increase of 49 percent on the previous year. Shareholders were rewarded with a dividend that rose from 11.5 cents to 17 cents per share.

Metlifecare, another chain of retirement villages, recently announced a 26 percent rise in interim profit, putting the company on target to meet an annual projected profit of around $30 million. Chief executive Richard de Haast cited strong sales of villages and apartments as the reason for the profit and said he expected the company's growth to continue as the baby boomer generation moved into retirement villages.