Press Release
New study dispels myths about retirement village profitability in NZ
23 Jun 2025
Although retirement villages can be profitable, a new study by Grant Thornton New Zealand has revealed it can take more than 20 years before an owner of an average village fully recovers their investment.
In its report titled, The path to profitability: Separating fact from fiction in New Zealand’s retirement village sector, business advisory and accounting firm Grant Thornton explores the commonly held belief about the retirement village business model disproportionately benefiting operators financially.
Pam Newlove, business advisory partner and retirement village services lead at Grant Thornton New Zealand says, “This is a major pain point for many of the operators we work with. It stems partly from a misconception that building and operating a retirement village is much the same as selling residential property where operators build units, sell them, buy them back at a discount and sell them again for more, repeating that process every few years as residents come and go.
“In reality, you only need to scratch the surface of the sector’s inner workings to see a different and more complex picture emerge – one that clearly demonstrates being a retirement village owner is not for those seeking immediate gains. These misconceptions are not helped by the financial reporting requirements for villages which can present an overly optimistic situation.”
Grant Thornton’s study is based on a discounted cashflow financial model of two retirement villages that represent a cross section of the sector: Rural villas in Canterbury and urban apartments in Auckland. It covers a 25-year period comprising the key stages of a retirement village development from sourcing land and construction, to project completion and revenue generation. It then takes into account the sector-specific sensitivities that impact a village’s profitability, some of which include occupancy lags, ORA (occupation right agreement) sale prices and construction costs.
The analysis reveals a payback period of just over 21 years for the rural complex of villas, and more than 25 years for the urban-style apartments.
Newlove says, “That isn’t to say these villages are making an operating loss for two decades. The sites in both our scenarios experience strong early cashflows from the initial purchase of ORAs by new residents and subsequent deferred management fee (DMF) payments, but this declines sharply between the seven-and-a-half to 10-year marks as ongoing operational and refurbishment costs start to eat into annual profits.
“And, the average stay of residents is also seven to eight years, which means cashflows from the resale of ORAs quickly decrease due to reduced inflows of new residents. Weekly fee income is typically only just covering operating expenses, and general feedback during our research was that many operators are struggling to cover operating expenses in the current economic environment. By focussing on actual cashflows, the real financial position for operators emerges.
“Our report covers even more headwinds unique to the sector which, unlike most other businesses, sit at an unusual intersection of commercial viability and the provision of vital services for a particularly vulnerable part of our population. That’s why we should all care about the success of the retirement village sector and that starts with understanding what it really takes to invest in this industry.
“More clarity of the financial variables that impact the profitability of villages will aid the understanding of all key stakeholders and ensure a balanced approach to policy and investment decisions.”
Experts / Authors
Pam Newlove
I help business owners cut through the complexity they often face in managing the financial and strategic aspects of their business, so they can focus on the bigger picture and achieve their ambitions.
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