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The UK’s population is ageing, due to medical advances and an improved quality of life. Whilst it is nice to think that more people will live long and healthy lives, unfortunately this is not always the case, and many develop health problems in their later years which may require extensive care. The significant increase of an elderly population, coupled with the decrease in those of a working age, means the UK government is struggling increasingly to raise funds to cover the cost of their care.
In three decades to 2045, one quarter of the population in the UK will be aged 65 or older. The government and local authorities are already struggling to meet the needs of the elderly already in their care, and with the increased pressure on services, their struggle will be almost impossible to overcome. In eight years, there will be a shortage of approximately 71,000 care beds as there will be an additional 353,000 older patients with complex care need, according to research conducted by a team of Newcastle University academics.
At the intersection where urgent need meets dramatic under supply is where great potential profits can be found. And looking at the South African investment landscape, it makes an even more compelling case.
Although the repo rate in South Africa has been slashed by 25bps from 6.75% to 6.5%, which typically causes house price growth, those with savings will see a much lower return.
Since the rand has appreciated relevant to the pound (about 16.79 ZAR to 1 GBP), it may be a good time to consider diversifying a property investment portfolio to include overseas property while the rand is strong. If investors keep their savings in a South African bank account, they will be achieving a lower, risk-adjusted return on their money. With the backdrop of the land expropriation issue, there is more uncertainty than is priced in now with the positive Cyril effect.
Within the next five years the impact of the Brexit negotiations should have taken its effect; one could expect the pound to appreciate, thereby benefiting those selective investors from both a capital gains and income perspective. There is also the altruistic element to investing in the undersupplied UK care home sector. However it does not come without risks.
Retirement living investments – a robust alternative
Calculating investors have discovered that luxury retirement property developments provides the strongest investment case. The residents are affluent, which means that they are self-paying and not government supported,thereby reducing political risk and cutbacks.
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Each high-quality apartment is furnished with a typical rental of R20 945 per week. That includes hotel style services such as meal preparation, housekeeping, laundry room service. In addition to organizing social activities, offerings include help getting out and about, shopping, administering medication, personal hygiene, on-site award-winning chef, hair and beauty salons. Most residents say that it is the companionship and sense of community that attracts them to retirement communities.
As the residents do not usually have complex medical needs, there is no statutory requirement to have minimum level nurses onsite, thereby reducing operational risk and the cost of a potential shortage of nurses.
In 2017, Legal & General acquired a UK operator with R670m of retirement property portfolio. Their chief executive, Nigel Wilson said “Creating around 3,000 new, quality homes over the next five years, our aim is to become a leading later living housing operator”.
The retirement home asset class is one of the most undersupplied in the housing market and according to estimates, 3.3 million people in the UK wish to downsize, but only 7,000 specialised homes were built to accommodate later living requirements.
Retirement property developments are generally located in the warmest part of the UK, such as the Isle of Wight and Devon. Almost 24% of the population is of retirement age in these South Western counties. Aside from the existing residents, those in their later years willfully exchange the hustle and bustle of city living for the tranquility of the countryside, where they can enjoy leisurely walks along the beach and stumble across village boutique shops and quaint cafes.
Retirement home investments – the fundamentals
Retirement home investments typically offer an annual return of 10% over a ten-year commercial lease. As the suite or apartment is leased back to the developer and an experienced operator installed, it is completely hands-off for the investor. Owning a rental property can be time consuming if self-managed. As busy members of society, readers of Estate Living can appreciate the value in having the property leased and managed by an operator.
In the UK, commercial property under R2.5 million is exempt from stamp duty (land tax) at acquisition. Recent tax changes on income on UK residential properties will not apply to care homes or retirement home investments.
In conclusion, retirement homes do not seem to be under the same pressures that care homes are currently facing in terms of nursing staff shortages, increases in the minimum wage or lack of funding from the local government. They provide a service not specifically for those with complex medical needs, but for those either looking to release equity from their property, or who just wish to spend time with other like-minded individuals (or both).
The increase in popularity of retirement living in the UK and the UK’s ageing population, coupled with the shortage of appropriate retirement living suites, provides an ideal investment environment. Large corporations are recognising the gap in the market for retirement home investment and have begun investing millions into the sector.
Opportunities tailored towards the individual investor and offered by One Touch Property often sell out within a few days. If listed property funds and private investors are recognising the benefit of UK retirement home investing both socially and financially, could it pique your interest?
Download the free guide: www.onetouchinvestment.co.uk/care-home-investments/
