Point of view: Retirement communities
Retirement communities became conventional in developed countries long ago, or as it was accepted to name these communities – “55 plus” real estate. But in Russia they don’t think about it yet.
The generation of people, who started their work activities in 1990s, is approaching this age threshold. In Russia there are few alternatives to arrange life after leaving a job. The most prevailing alternative is to stay in the same place and under the same conditions. If there is no support within reach, pensioners have to move into retirement homes,. More attractive alternative is to move to the country. The fourth alternative is to buy property abroad. For example, in Bulgaria house prices are several times lower than somewhere in Krasnodar Krai.
In Russia the retirement age for women is 55 years and 60 years for men. As a comparison: in Germany the retirement age of both women and men is 67 years, in Japan – 70 years. In European countries there are about 20-25% of pensioners of the total population and their number grows by 2% per year. In Russia there were 36 million pensioners (25%) in the beginning of 2011. Average lifespan is 16 years: 13 years for men and 23 years for women. In Russia 8,6% of GDP are delivered by the government for pensioners` needs (in Australia – 20%, in Japan – 22%, in Austria – 28%). In our country pensioners have to rely on themselves and their relatives that means a scope opening for commercial projects.
Rich idea
About 50 years ago in Arizona (the USA) a development corporation, belonged to Delbert Webb, acquired a right on construction of an abandoned cotton field located near a capital of the state – Phoenix. At first Del Webb had planned to build cottages but soon he understood that the market was glutted with this kind of supply. And Webb, at the age of 70 at that moment, was struck by the idea to put an age limit for customers – to be not younger than 55 years old. While building a settlement in the desert, he decided to attract clients by creating the life that people deserved. He formulated a set of requirements regarding houses and the settlement; he designated the minimum necessary infrastructure level (engineering, transport, medical and social infrastructures) and conducted a widespread advertising campaign. He invited everybody who wanted to visit this place and to review the project on Christmas Eve in 1960. Webb supposed that no more than 2000 people would arrive on the site. But 10 000 people arrived. About 100 000 people visited the construction site during the next three months. In January, 1960 Webb`s corporation made more than 400 contracts for construction, and a total number of all contracts made during the first year was over 2000. Nowadays this settlement, named San-city, amounts to 25 000 households which provide 8000 additional work places and where about 50 000 pensioners live. The corporation has built and manages retirement communities in 20 states of the USA. The corporation net profit from construction and management amounted to more than $3 billion during 40 years, according to 2000 values at 20% profit rate.
Other development companies began similar projects observing this corporation business success. So, Harold Shwarz started building the settlement named Villages Fl in Florida in 1961. At present this settlement amounts to 75 000 households where about 150 000 people live. At this time about 3 million people live in “55 plus” communities in the USA (6-7% of the total number of pensioners).
Other countries took up this initiative. There were about 80 communities in Great Britain by the end of 2008, about 350 – in New Zealand, about 800 – in Australia. In Western Europe retirement communities are less popular, although there are similar communities in Germany, Austria and Denmark. According to statistics, a number of residents remains practically the same in different countries and amounts to 5-6% of the total number of pensioners. So, about 1,8 million people are a target audience in Russia.
The life seethes
The architecture of complexes might be quite different. For example, in Japan because of land scarcity, pensioners are offered high-rise apartment buildings including medical, cultural and leisure centers and restaurants.
The life quality of senior citizens is provided with a determined set of public premises – polyclinics, hospitals, clubs, hotels, sports facilities – and with professional work of management companies which take charge of around-the-clock medical service, arrangement of social activities, etc. There is usually a cultural centre which organizes leisure time. As a rule, this centre invites to meetings with different celebrities, including celebrities of previous years. Social “associations of settlements” provide a connection with legislators of the country, a certification of new settlements and management companies, and exchange of experience. They conduct conferences, release magazines and newspapers.
Many countries, concerned with social problems of the older generation, take an active part in establishing this kind of settlements. Thanks to this approach, active pensioners (under the age of 75) return to the economic and social life. Appropriate business is developed involving private funds of pensioners and their relatives in construction and operation.
For young pensioners
Retirement communities are intended for people of junior pension age (55-75 years) and for average income of customers. Luxury atmosphere is impossible here. Residents of the settlements like these don`t need a lot for comfort living. These people enjoy going in for sports, communicating, making art, caring for flower beds and gardens, looking after animals. The majority of households in ‘55 plus’ settlements look modestly, even ascetically. A household cost in Villages Fl doesn’t exceed $50 000 (1,5 million rubles.), that is not a high price for the USA.
Children, grandchildren and friends of elderly residents of this settlement might stay with them, but no longer than three months in a year. This type of restrictions are not prescribed but they have been developed (these restrictions are considered to be a discrimination in a legal system of many countries), and there are legal variants to provide living of people belonged to a concrete age group.
As a rule, a household is established in shared ownership where about 75% of shares belong to the settlement resident, and 25% - to a management company. That is the very case when success or failure of the project depends practically on the management company. Owners might sell or give their share, they might establish it as a bankable pledge but they have no right to live there before the age of 55 – the management company keeps watch over this. Young heirs might sell or mortgage a house, but they can’t change rules regarding living in this house.
Existing experience and estimations indicate that monthly payments level that amount to about 700 rubles per day or 21 000 rubles per month (for operation, utility charges and back up services) correspond to zero breakeven. When monthly payments are at the level of 45 000 rubles per month, the breakeven amounts to 23%. It is interesting that in state homes for elderly people, expenses level on guests maintenance correspond to the same figures that gives possibility to commercial projects of settlements for population aged over 55 to undertake service towards pensioners as well as due financing. Personal incomes of a pensioner (pension and/or any other incomes) or funds arrived from management of the pensioner’s other property, for example from management of the pensioner`s flat might be these payments source. As a rule, the management company undertakes also a flat management, renting it out or selling it by agreement with an owner - and these funds provide monthly payments.
Reality and prospect
In Russia there are rather successful social projects which have been made via budget funds. For example, the settlement for 38 households built up in Saratov Region in 2004, where the price of a house was $53 000. A budget-oriented cottage settlement for 70 people was built in Chernomorskaya Stanitsa of Krasnodar Krai, a housing complex (houses designed for two people for 120 veterans) appeared in the suburb of Aginskogo Village of Krasnoyarsk Krai. According to a social plan this is one of the most attractive and reasonable projects of that kind of format in Russia.
In 2007 Gazprom`s project was developed in Khrustali Village of Kaluga Region but it just remained on paper. SIB`s settlement in the suburb of St. Petersburg – Pavlovsk is being realized along with a chain of clinics “Skandinaviya”. Now it is at the engineering development stage.
*Facts for this article have been prepared by Sergey Dmitrievich Ryabinin during three years, who worked as a head project manager in GVA Sawyer before his retirement, and who has more than twenty years experience of working in the sphere of commercial real estate.
Автор: Nikolay VECHER, Head of GVA Sawyer, St.-Petersburg , Partner
"Vedomosti" Appendix "Real Estate. Residential Fund", June 18, 2012
