You might have heard that people lose a lot of money when they move into a Retirement Village, or that entering a village is a ‘rip-off'. Generally, comments like these usually come from not fully understanding how the financial arrangements in villages work, because they're quite different from a standard property purchase.
Understanding the financial arrangements
There is no denying that by signing up to a Retirement Village you are (usually) agreeing to losing a certain amount of your initial investment. However, it's not being sacrificed for nothing. The amount kept by the village operator is called a Deferred Management Fee (DMF). As the name suggests, this is a payment made after you leave a village in recognition of the many services and amenities that you have been able to access during your time in the village.
DMFs vary greatly, so it's important to know exactly how yours works. Usually, the DMF is a certain percentage each year and is capped after a certain number of years. For example, if the DMF is 5% (of the initial investment) per year, capped at 25%, it might look like this:
- Year 1: 5%
- Year 2: 10%
- Year 3: 15%
- Year 4: 20%
- Year 5: 25% (cap reached)
After year 5, the percentage no longer increases. Whether you stay for 6 years or for 16, the DMF remains capped at 25%, meaning you'll receive 75% of your original investment back when you leave the village. The exact timing and process for this payment will be outlined in your Occupational Rights Agreement (ORA).
This structure is one of the reasons people often choose to enter a village earlier, as they can make the most of the amenities and services offered.
What about Capital Gain?
Another common concern is that most villages do not pass on capital gain to residents (or their estates). This means that your DMF payment is based on the price you paid when you entered the village, not the price at which the operator may re-sell your unit.
For many New Zealander’s, capital gain on property has been how they may have grown their personal wealth/retirement savings. The last decades of property sales have been unusual, in that there has been very little downturn in the market, which usually results in capital loss. It's worth noting that while you don't benefit from capital gain, you're also protected from capital loss (if this were to occur). In other words, if the housing market drops, your original investment is still the figure used to calculate the refund.
A different kind of investment
What is most important to consider with both the DMF process and the potential to not capitalise on any property value increase is that purchasing into a Retirement Village is not a ‘regular’ property purchase. For this reason, the legislation governing Retirement Villages ensures you have independent legal advice to explain how the process works.
For many who make the choice to move into a village, this is the ‘rainy day’ they have been saving for and using a portion of their retirement funds to pay for the village lifestyle is worth it. This can require a mind shift – you are no longer building for a secure future but experiencing it.
Purchasing into a village is not a last step on the property ladder; rather, it is a way of using some of the funds which may have been invested in property to invest in a lifestyle choice.
Whilst it is not for everyone, many village residents will tell you they understand and are happy with the financial arrangements they have agreed to, and they certainly don’t see it as a ‘rip off’.
Updated: 21 Nov 2025