Departure Fee Calculator Instructions And Explanations
Entry Price ($):
This is the initial amount you are required to pay to secure a unit in the village,including any deposit. It may be the purchase price or it may be described as an interest free loan, a refundable deposit, a prepayment of rent, a lease premium, an accommodation bond, an ingoing contribution or a combination of these.
Departure Fee (%):
This is the rate at which the departure fee accrues each year. It generally varies from about 2.5% per annum to as high as 10% per annum in some cases. In some villages the departure fee may accrue at a higher rate in the first year or the first couple of years (e.g. 8% in the first year and 4% p.a. in subsequent years).
The departure fee will generally be calculated by applying the accrued departure fee percentage to either the entry price or the re-sale price.
Sometimes the legal documentation will specify a minimum departure fee percentage. For example, it may provide that the minimum percentage is 10% even if the accrued percentage is less than 10% at the relevant time.
The legal documentation should always specify a maximum departure fee percentage because otherwise if you stay long enough it is possible you will get nothing back when you leave the village. The maximum percentage is often expressed as a maximum number of years. For example, if the departure fee accrues at 2.5% per annum “for a maximum of 10 years”, then the maximum percentage is 25%. If there is no maximum percentage be sure to raise this issue with the operator and your lawyer and financial adviser.
Some villages charge an additional one-off administration fee when you leave the village. It will usually be based on the re-sale price and is generally a substitute for specifying a minimum percentage.
Capital Gain (%):
If the departure fee is based on the entry price, there will usually also be a separate arrangement regarding the apportionment of any capital gain that may accrue. Enter the percentage of the capital gain that the operator is entitled to keep under this arrangement.
If the departure fee is based on the re-sale price, there is generally no need for a separate arrangement regarding the apportionment of any capital gain that may accrue because the accrued departure fee percentage (or the minimum percentage, if it is greater) will automatically also apply to any capital gain that does accrue. If the departure fee is based on the re-sale price and there is a separate capital gain arrangement, be aware that the operator is essentially double-dipping into the capital gain.
Growth Rate (%):
This is the annual compound rate at which the market price of the property is expected to increase in future years. It obviously involves some guesswork but as a general proposition it is probably reasonable to assume that there will be a strong positive correlation between movements in the market price of retirement village properties and the broader residential property market. There is also a strong argument that demographic changes such as the impending retirement of the “baby boomers” and generally increasing life expectancies will create continuing demand for housing that meets the requirements of seniors.
We generally recommend that you try at least 3 different growth rates including your best estimate of the likely growth rate and a higher and lower rate so that you can see how sensitive the results are to changes in the growth rate.