Why invest in a retirement property?

Why invest in a retirement property?

Luxury retirement homes…a breakthrough in tackling some of society’s problems?


According to a recent report by Savills, rented sheltered housing does not meet the needs of 25 per cent of older households. How can we bridge this gap whilst simultaneously addressing some of society’s problems such as the housing shortage, and an isolated elderly generation?

A lack of supply of suitable retirement properties has led to an overwhelming proportion of Britain’s elderly population trapped in homes they are unable or unwilling to maintain. Currently only 1 per cent of over 50s in the UK live in retirement developments, compared to 17 per cent in the US and 13 per cent in Australia. Yet around 40 per cent of households can afford to downsize and have at least £50,000 left over. So why isn’t more being done to ensure the elderly can live in homes appropriate to their needs?

Around 300,000 households - classified as those who have enough wealth to own their own home, but not enough to leave it - fall through the gap. Sometimes there is space in sheltered housing to accommodate them, but these types of residences can often have the reputation of being run-down and only somewhere to be used as a last resort. Also, sometimes it is just difficult to leave a family home; a familiar place that holds many memories. In the UK, over 65s own over £1.5 trillion in housing equity, or approximately 43% of the UK’s total according to a recent Savills report. As a large percentage of those own their home outright, there is no incentive for them to move into substandard sheltered housing, unless health or finances implore it.

Individuals are unable to move due to a lack of adequate retirement housing options 

There is also a lack of supply of appropriate units in areas with the most urgent requirement, with just 2 per cent of the UK’s housing stock purpose built for elderly occupation. Sheltered housing is often concentrated in large cities such as Birmingham and Bristol, resulting in an oversupply in these areas as fewer older people stay in such large and busy cities. Conversely, demand overwhelms supply in typical retirement destinations such as the Norfolk Broads and south coast, and this has resulted in a huge national imbalance of available accommodation.

Other barriers that deter older people from downsizing include the hassle and cost of moving and potentially being further away from a support network such as children and grandchildren. Also moving to a smaller property does not necessarily mean it will be less expensive, especially when removal costs and legal fees are taken into consideration.

The increasing popularity of luxury retirement property – and the benefits of investing in it

Recognising a demand, several companies have begun developing luxury care communities, aimed at those who wish to live in a community where help is always on hand but the environment allows for residents to enjoy their independence. These types of care homes pride themselves on being well-maintained and well-run, they are often conversions of Grade II listed buildings and boast new state-of-the-art facilities. In-house prolific chefs who have previously worked at Michelin-star restaurants cook meals from scratch using locally-sourced ingredients, and if it is a hobby, residents are encouraged to help cultivate the community’s gardens and grow the plants and herbs.

With a typical unit costing under £150,000, this type of commercial property investment bypasses stamp duty fees, and investors can make a healthy 10 per cent return per annum – much higher than returns achieved from putting the money in a savings account (typically around 1 per cent). Retirees who sell their homes can trial living in a retirement village and avoid paying stamp duty if they make a subsequent purchase within three years. This affords them enough time to see if they like the retirement village living environment or whether they wish to purchase accommodation elsewhere. Investors can also choose to rent out the unit for a set period and then decide whether they want to live in the unit or use the rental income to live in another development. If they choose to sell their house and downsize to a retirement property, they can gift money to their children and grandchildren, limiting the amount of inheritance tax they’d have to pay otherwise.

Many luxury retirement home investments restrict the sale to over 65s only on a lifetime lease basis. The benefits of the luxury care investment opportunities One Touch offer are that they can be sold to owner-occupiers or investors alike. This opens a wider pool for resales, and allows for better capital uplift. Also, lifetime leases cannot be passed on to a beneficiary so if the occupant dies within five years the investment is returned to the company with no benefit to the remaining family’s inheritance and at a far greater cost. Conversely, the fixed-term nature of the leasehold that accompanies investments offered by One Touch can be passed onto other family members should the owner pass away before the leasehold is up.

In short, retirement property investments give individuals a lot of flexibility to choose what they want to do with their wealth, and at the very least they let them choose whether they are suited to living in a retirement home environment.

The benefits of downsizing to a retirement suite on wellbeing and finances

Those that can find suitable accommodation and downsize can reap the benefits. Capital released from their former home can be gifted to children, and therefore would not be subject to inheritance tax. The government is also planning on providing incentives such as stamp duty exemption to those looking to downsize from their property, in the hope that it will free up existing housing stock for young families and first-time buyers who are currently unable to get on the housing ladder. As mentioned before, over 65s sit on £1.5 trillion in housing equity and they often have no compulsion to downsize as many own their home outright. However the lure of thee financial incentives, and the positive effect it may have on wellbeing may be enough to tempt many of them.

Flown the nest – now what?

Many choose to buy a studio in a retirement village simply because of the social aspect. Elderly people whose children have flown the nest and who no longer have a partner often miss simple day-to-day interactions. Sadly, two fifths of older people have said that their main company is the television, and 63 per cent of those aged 52 or over who have been widowed report feeling lonely either sometimes or often. Retirement villages offer the elderly a place to live and thrive, hosting regular social activities such as wine tasting and walks along the beach, as well as giving residents the opportunity to mingle with one another. Care communities have trained nursing staff on hand to assist with each resident’s individual needs, and provide as much care as is required.

As previously mentioned, much of the sheltered housing on offer is in large cities where there is already more supply than demand. One Touch's retirement property investments are generally located in areas where there is a high elderly population, such as the Isle of Wight, Cornwall and the North East. People want to be surrounded by countryside that they explore during the day, and enjoy a slower pace of life. They don’t want to experience the hustle and bustle of city life.

How to invest in retirement property?

Shanklin is one luxury retirement home investment opportunity based in the idyllic Isle of Wight. Prices start from £85,400 and yields of up to 10 per cent per annum are guaranteed for ten years. Half of the island is designated as an Area of Outstanding Natural Beauty, so it is no wonder it is a popular place for those who have time to explore the island’s landscape. In fact, over the next ten years the number of 65 to 79-year olds will increase by nearly 17 per cent and the number of over 85s will increase by 40 per cent as more people realise the appeal of the Isle of Wight.  

  • Contact One Touch today or download the UK care home investment guide to discuss more about buying a studio in a retirement village and why it makes sense as an investment if you are looking to downsize or safeguard your capital for your children and grandchildren.