What is a viable model for retirement villages in Malaysia?

With a well-developed and mature retirement market, Australian retirement villages are a global benchmark for best practices, supported by a world-leading legislative and quality framework, and substantial investment in research. Malaysia’s ageing society would do well to research the Australian model and tailor our own solutions.

Although Australia is a market that understands the value of the retirement concept very well, the penetration rate of retirement villages in Australia is only around 6.0%. Approximately 221,910 Australians aged 65 and above live in retirement villages out of a population of 3.7 million.   

As shown in Figure 1, most Australians aged 65 and above prefer to age in place. The homeownership rate among older Australians is high – 82% in 2021. Also, they want to stay in their community for psychological health, emotional security, and quality of life. Still, some require age-specific housing options such as residential aged care and retirement living.

While both retirement villages and residential aged care facilities provide accommodation for older Australians, they are designed for people at different stages of life and with very different needs. Residential aged care facilities provide full-time care for the passive and frail who can no longer live independently and require supervision and assistance.

Retirement villages on the other hand are independent living communities for active seniors in their 50s. The villages are normally made up of private homes and offer shared recreational facilities such as pools, community centres, and tennis courts. Unlike residential aged care facilities, healthcare and support are not the primary service drivers in retirement villages, but additions.

How retirement villages work in Australia

The majority of the retirement villages in Australia are single-level or low-rise villas occupying landscaped grounds with community spaces. Some include serviced apartments.

Payment is skewed towards the Deferred Management Fee (DMF) model which, as the name suggests, defers the payment until the resident leaves the village. The resident pays an ongoing contribution to reside in the village. This is then repaid, minus the DMF, on exit and sale of the independent living unit (ILU). Subject to the contract, the resident may also receive a share of the capital gain which occurred over the period which can be used to offset the DMF payment.

This is selling a right to occupy, or what the industry calls an “occupation right agreement”. At the end of the resident’s occupation, the occupation right agreement of the ILU is resold to the next buyer.

Just like other types of property, retirement villages are exposed to the rise and fall of property prices. If property prices rise, the operator may sell the occupation right agreement at a higher price and make a resale gain. If prices fall, the operator is likely to suffer a loss. For example, assuming an operator sells an initial $500,000 occupation rights agreement for $550,000 five years later. $400,000 is returned to the resident. The operator makes $100,000 in DMF and $50,000 in resale gain (Figure 2).

Many who prefer to downsize their family homes often see retirement villages as an affordable alternative, as they are about 10% cheaper than local apartments. By selling their family homes and downsizing to a cheaper dwelling, Australian seniors can free up equity to fund their lifestyles and additional services over the next stages of their lives.

Malaysia vs Australia: Looking at the differences

The Australian business model can provide valuable insights into the nascent Malaysian retirement village industry. However, we must not directly duplicate it as our country is different in terms of culture and economic level.

The difference between Western and Eastern cultures may lead to different awareness and acceptance towards retirement villages. Different economic levels (developed vs developing, high-income vs middle-income) result in different domestic lifestyles. These affect the selection of target markets and penetration rates of retirement villages among the elderly.

As a developing Asian society of large families and strong community attachment, the elderly in Malaysia prefer to live close to their children. Figure 4 shows Malaysia’s higher homeownership rate (76.9%) and bigger household sizes (3.9), but a relatively lower purchasing power parity (PPP) (USD29,617) and smaller population aged 65 and above (6.8%) compared to Australia.

This puts acceptance for Malaysian retirement villages in doubt. Developing and managing retirement homes in Malaysia poses higher risks; not only is it a property play, but it is also a service and hospitality business. Property developers also get little policy support, a limited pool of ready talent to tap into, a few success stories, and issues regarding annuity and transfer upon death.

Furthermore, COVID-19, disruption to the global supply chain, and the Russian-Ukraine conflict have brought inflation, eroded purchasing powers and threatened the financial securities of retirees. Those who are no longer working not only run the risk of taking retirement distributions from an already depleted pool of assets but have to take greater risks with their portfolios to make up for lost ground. This makes it harder to preserve savings for a secure retirement.

Retirement villages in Malaysia  

There are only two retirement villages operating in Malaysia: GreenAcres Retirement Home in Ipoh, Perak, and Eden-on-the-Park in Kuching, Sarawak (Table 1). Both borrow the Australian concept of independent active senior living, meaning they are mainly for senior citizens who do not require assistance for daily activities. Services such as dining, housekeeping, and low-care nursing are available upon request.

Table 1: Senior living facilities in Malaysia

Though retirement villages are expected to grow in Malaysia in tandem with an increasingly ageing population and rising awareness of home care services, progress has been slow since their introduction. Mont Kiara Sophia was launched in Kuala Lumpur in the mid-1990s as a low-density condo for senior citizens, but never took off due to lukewarm interest and was later repositioned as a high-end condo.

Likewise, Rei Seraya Residence in Kuala Lumpur and Green Leaf Retirement Resort in Selangor was launched in 2018 and 2015 respectively, but have shown little progress. Aurel Sanctuary in Pahang was set for launch in 2021, but the pandemic changed that.

These retirement villages in Malaysia have one thing in common: they are all marketed as high-end senior living services and facilities. This is rather a niche market when compared to the Australian model of affordable housing for the elderly. With such a small target market, no wonder retirement villages are considered risky investments in Malaysia.

Two things hamper the growth of retirement villages here: lack of developer interest due to high upfront and maintenance costs and lukewarm public response.

A UiTM survey among 1,067 respondents in Selangor (Figure 5) indicates most Baby Boomers prefer to age in place (52.3%), followed by moving out to live with family members (25%), and moving out to live independently (18.2%).

Generation X shares a similar preference for ageing in place (43.3%), followed by moving out to live independently (39.3%), and moving out to live with family members (10.4%). By contrast, independent living is most preferred by Generation Y (33.9%) and Generation Z (34.1%).

All these age groups show little interest to move into housing tailored for the elderly, an indication of the Malaysian public perception of living in a retirement or age-restricted community.

Potential models for retirement villages in Malaysia   

To develop a model that suits specific market characteristics, customs, and cultures, developers need to thoroughly study the sizes, incomes and preferences of the target markets.

It is also crucial to study the competitiveness of retirement villages against home care providers. Affluent groups are likely to engage home care providers to age in place. And if a retirement village is to target foreigners, the developer should figure out its unique Malaysian quality and how to package it.

A typical senior living facility should provide both accommodation and care services for the elderly. Depending on the level of care provided in conjunction with the living arrangement – from concierge to home care and nursing care – a senior living facility can be offered in the form of multi-generation living, independent living, assisted living, and skilled nursing (Table 2).

 

Table 2: Type of living and the associated services offered

Independent living offers a lifestyle choice of age-appropriate living in combination with reduced routine housework, while nursing care facilities are for long-term rehabilitation. Residents living in assisted living facilities do not require full-time supervision, but cannot live independently at home. Clearly, facilities for multi-generation living and independent living skew towards real estate, while skilled nursing and assisted living are primarily a service provider.

Table 1 shows that, with the exception of retirement villages, senior living facilities can be found in the current market. As opposed to age-restricted or elderly-specific retirement villages, these senior living facilities are elderly-friendly, multi-generational, or wellness and lifestyle living centres aimed at facilitating mobility and providing immediate access to medical care, without being too different from typical real estate products.

For example, Tuai Residence by Suntrack and The Parque Residences @ Eco Sanctuary by Eco World incorporate senior-friendly designs and support services, allowing the elderly to maintain their lifestyles even with increasing disabilities. Gems Residences by IOI Properties and AraGreens Residences by HSB Development integrate high-level lifestyle and wellness living features. All these developments are real estate products with (or without) concierge services, as opposed to aged-care or healthcare providers.

Compared to a pure retirement village like GreenAcres and Eden on the Park, the advantage of this model is, not only can it be treated as a typical strata development that promises security in return for investment (ROI), but it can also be converted into housing for independent or assisted living through the use of dual-key and other elderly-friendly designs.

On top of that, developers can choose to build and run the care services themselves or have a third-party do so. Since current developers are interested in strata-type developments without the financial risks of operating an aged care facility, this model allows them to include such a facility within the development as a built-in option for when the residents’ age.

Alternatively, developers can co-locate their senior-friendly housing products with care facilities to mitigate risks associated with running a care service. Not only can co-location increase the value of a real estate product targeted at the elderly, but it also allows the developer to focus on property development rather than running a care service. In fact, nearly all new retirement villages in Australia nowadays are either co-located with care services or built close to such facilities.

In terms of the target market, the concept of active living combined with healthcare may attract not only rich locals but also foreigners. This is because Malaysia has great potential as a retirement destination, owing to reasonably good amenities, facilities, infrastructure, cost of living, and quality of life. The country’s robust medical tourism sector has shown that foreigners choose Malaysia for retirement and medical treatment for the high standard of living, affordable top-notch healthcare, and English-speaking population.

Foreigners are likely to buy property in Malaysia only if they feel comfortable and welcomed here. Their health, age and ability to live independently will determine whether they choose a property or a senior living facility. The prospect of foreigners retiring in Malaysian senior living facilities is bright if our senior living facilities can meet their expectations. As such, a model that incorporates retirement, healthcare, and tourism should be explored to bring growth to our retirement village industry.