A guide to investing in aged care and retirement living
With a quarter of Australians aged 55 and over, property investors with an eye for demographic trends should be drawn to aged care and retirement accommodation.
As Australia’s population ages, the need for high-quality, accessible aged care and retirement living facilities will continue to grow. With strong occupancy rates, government support for ageing in place, and an evolving regulatory landscape, the sector presents attractive opportunities for investors.
According to the Australian Bureau of Statistics, 25 per cent of the Australian population in 2024 is aged 55 and over.
The demographic shift has increased demand for senior-specific housing, like retirement villages or seniors housing, which provide flexible care and services that support independent living or adjust as needs evolve.
Among these options are independent living units (ILUs), which are apartments or villas designed for seniors who can live independently but may require minimal support.
ILUs promote ageing in place, allowing residents to remain in their homes while receiving necessary home care.
Residential care facilities, often referred to as nursing homes, provide full-time care for residents who need significant assistance with daily activities. The focus is on offering a home-like environment rather than a hospital setting.
Hostels offer shared living spaces for seniors who require some assistance but can still maintain a level of independence.
Aged care rating system
To assist families in choosing the right facility, the Australian Government introduced the Star Ratings system, managed by the Department of Health and Aged Care.
This rating system, launched in December 2022, helps families compare the quality of care across residential aged care homes through a rating between 1 and 5 stars, based on four key sub-categories:
- Resident’s experience surveys: An annual survey of around 20 per cent of residents in a specific aged care home is conducted to determine their experience and overall satisfaction with the care provided.
- Compliance: Measures how well homes meet government standards for safe quality care and services.
- Staffing: Compares the amount of care time residents receive from nurses and care workers in relation to minimum average care targets set by the Australian Government.
- Quality measures: looks at five areas of care that are important indicators of care quality, like falls and major injury, unplanned weight loss, pressure injuries, medication management and the use of restrictive practices.
These categories contribute to the overall rating, with 39 per cent of facilities initially receiving four or five stars in 2022, a figure that rose to 66 per cent by August 2024.
Aged care ownership models
This improvement signals the sector’s commitment to raising standards, but challenges remain, particularly in meeting new regulatory requirements and operational demands.
In late 2023, the State Environmental Planning Policy (Housing SEPP 2021) was revised to enhance accessibility and usability standards for seniors’ independent living units.
These updates led to the introduction of the Seniors Housing Design Guide 2023, addressing both physical and social aspects of ageing and the importance of addressing these challenges.
In this sector specific housing design guide, two main building types are differentiated.
Residential care facilities are homes that are typically divided into ‘care households’ or ‘care wings’ with seven to 20 beds and shared living spaces, designed to provide a safe environment for residents with high care needs while preserving a home-like atmosphere.
Essential design elements include single-level layouts, secure areas for dementia patients, and centralised services like commercial kitchens, laundry facilities, and a main front entrance that hosts reception, offices, wellness facilities, and on-site staff parking.
ILUs focus on accessibility and adaptability, allowing residents to age in place. ILUs often include communal areas to encourage social inclusion, activities and wellness and many developments incorporate care services on-site to delay or avoid transitions to higher-care facilities. Independent living units must also be located close to services or provide those services onsite.
There are different ownership models for seniors housing, particularly in independent living units and care should be taken when making purchasing decisions.
- Freehold retirement villages allow residents to own their unit on a strata title, similar to owning a standard unit or apartment.
- Leasehold or licence retirement villages allow residents to purchase a long-term lease (e.g., 99 years) on their unit, without owning the land or building. While they avoid paying stamp duty, ongoing fees apply.
- Lifestyle communities differ from retirement villages, as residents purchase the unit but rent the land. This can lead to higher ongoing fees and less security, as operators retain the right to reclaim the land.
Different management systems
When leaving a facility, there are also differences in how residents’ units are managed. In retirement villages, the operator is usually responsible for reinstating the unit to its original condition, while lifestyle communities often lack such guarantees, putting more responsibility on the resident.
The aged care sector presents lucrative opportunities for property investors, with a 90 per cent occupancy rate in many facilities, indicating strong demand. This rising demand is attracting both local and international investors, especially as the population over 55 grows.
Refurbishing older aged care homes, especially in more densely populated urban areas, has become an attractive option for investors due to the strict regulations and high costs associated with constructing new facilities.
Many ageing properties in these densely populated areas present opportunities for modern upgrades that align with current accessibility and care standards. Refurbishment can also extend the lifespan of these buildings, enabling investors to capitalise on rising demand for aged care while avoiding the lengthy approval processes and complexities of a new build.
Property depreciation is also a valuable consideration for investors in the aged care and retirement living sector.
Buildings and equipment used in aged care facilities, such as residential care homes or independent living units, are eligible for depreciation, allowing investors to claim tax deductions on the wear and tear of the property over time.
This can significantly enhance the financial viability of such investments, offsetting some of the operational and refurbishment costs associated with maintaining high-quality, compliant facilities for seniors.
