It’s a worrying fact that most South Africans don’t properly prepare financially for their retirement. All too often, people who want to retire find that they don’t have the financial means to live their lives in the manner to which they have become accustomed. They often have to carry on working long after they had planned on retiring. Another worrying fact is that many South Africans don’t properly plan for life when they become infirm and are unable to care for themselves in old age. Addressing the issue of the pension shortfall while also addressing the demand for retirement and care homes is an interesting proposal from One Touch Property. Investment property expert Arran Kerkvliet, from One Touch Property, has unveiled a novel solution: investing in a care home room in the United Kingdom to generate revenue to make up any retirement shortfall, while at the same time securing a retirement option abroad in a care home. The proposed solution also offers altruistic benefits in that the investment could create much-needed care home spaces for those suffering from dementia. The hidden benefit is that, as a UK-based investment, the retirement home could also be used as back-up plan for those South Africans worried about the political future of South Africa and are thinking of living out their final years in the United Kingdom. David O’Sullivan spoke to Arran Kerkvliet about the Care Home investment proposal.
This interview is sponsored by One Touch Property, Arran Kerkvliet joining me on the line. Arran, we’re looking at the issue of pension shortfall, but we’re linking it to the increased demand for a time and care homes. Draw that link for me.
Well, as I said, it’s a global phenomenon. There’s an aging population, it’s as a result of the baby boomers, and it’s particularly apparent in the UK. For the first time in history it’s actually more people that are over the age of 65 than under the age of 16 and with the NHS, which is the National Health Service, they are not able to build any more care homes. What’s happening here is private and business partnership whereby developers would go out and seek opportunities to refurbish or to develop care homes. What they allow is active participation of investors to actually go and purchase a care home room, which is then leased back through to an operator, so thereby providing a service, a need, as well as earning a nice steady income of 10% net income per annum for the investor.
Somebody will be able to get retirement income should they invest in the scheme in the form of the 10% net income per annum and there’s a bit of a backup plan because they’re also buying themselves a care home.
Definitely and particularly the South African investors have liked this particular model in a way that, with all the political uncertainties in the country, they like it as a backup plan. Many of the investors are reaching a retirement age and they may wish to have a place where they could come and live in the UK and the properties themselves are in the South-West part of the UK, which is the warmest, so it fits in nicely from that perspective.
How can investors be sure that their returns will be paid?
That’s a very good question and many other investors have actually asked the same thing. They’re all worried about the stability of their returns. What we’ve particularly targeted is developers which are specifically going for the luxury end of the market, they’re going for more affluent areas, as I mentioned, of the South-West part of the UK and those people are all paying for the care themselves. You’re typically looking at around £1100 for care. These are per week, they’re for luxury care homes, sort of like the retirement villages that you get in South Africa, with very much a social aspect and additional community feel events are arranged, wine tastings, concierge service, even chauffeur if they so wish. From that perspective, it’s people that, in their retirement age, they’ve actually down-sized on their houses, so they’ve actually got a lot of steady income that is coming in from that perspective.
It’s a good point you raise, that we have these retirement villages in South Africa. I think anybody who is serious about retirement who has money to spend will be aware of these kinds of project that have sprung up to great success, around South Africa, is it the same kind of model then that you’re talking about in the UK?
Definitely and the model is there, but I think the actual implementation hasn’t been as swift as South Africa. In some statistics, I was reading that in South Africa, America, and New Zealand about 25% of the people over the age of 65 live in these retirement communities, where in the UK it’s currently so underserviced, it’s only 4%. The developers who we’re working with have typically been targeting bespoke Victorian period buildings. It might have been something, which is a stately home, typically 15 to around 40 rooms, which they’ve stylishly refurbished to an exacting standard, and those communities are in a luxurious environment very much similar to the ones that are being developed in South Africa, but with a nice historic twist to them.
Let’s talk about the numbers now. How much do these sorts of investments cost?
The typical price ranges are between £85,000 and £100,000, so that gives you a fully refurbished studio as I mentioned, in these Victorian properties and they’re formerly stately homes. What they then do is with that purchase price you’re actually getting a property, which you own, so you’d have the title deeds on the land registry and from that return of 10% that’s paid on a monthly basis as the income is coming in.
We’re talking about Pounds here, aren’t we?
Yes, that’s correct.
If it’s such a good investment, why does the developer not simply retain the property?
I think it really comes down to – it’s a question of scalability. One developer we’ve been working with has already purchased, refurbished and leased back seven of these care homes and there’s another four in the pipeline. That quite simply wouldn’t have been possible if they followed the traditional method of owning, putting in their own equity and obtaining a bank fund financing. What they’ve created is a win-win situation whereby they purchase the property, fix it up, and install a five star care home management team that provides an excellent service, thereby generating an income for investors. They sell the individual care home rooms and then lease back the property. They then release their own equity and are able to move onto another project while obviously earning a good return from the management of the care home and providing a return for the investor at the same time.
What about the resale of the property?
One Touch Property can assist investors if they want to sell. You own the individual studio and the title deeds are registered at the deeds office, so you can sell at any time that you wish. The developer is obligated to purchase the unit back with 25% uplift and that’s at Year 10, but in terms of the agreement, the developer can actually force to buy back with a minimum of 10% uplift at any time within the lease period. That’s any time within those ten years because practically speaking developers have found that there’s a tendency for the residents who are actually occupying the studios to make an offer on the care home unit once they’ve settled in.
Many people don’t want to be committed to purchasing one of these if they don’t like the community, so they’ll rent them for a while. When you consider that they’re typically paying in the region of £1100 a week, it makes sense for them to purchase the unit after they’ve stayed there for a while.
For the investor it’s pretty simple, they would just roll over to one of the other projects and in one year they could earn their 10% income as well as the 10% minimum uplift and just take the proceeds of that sale to invest in another property and that process would typically take between six and eight weeks.
What are the risks?
I think, with everything there are risks and it’s about choosing a balanced portfolio, but the fundamentals of the aging population speak for themselves and there’s an overwhelming investment case in support of the luxury care homes in the UK. The care homes are attractive buildings, they have been stylishly refurbished, and the risks relate mainly to the management of the care home. The developer’s objectives are actually aligned with the investors in that they are incentivised to make money from the management and typically, these care homes are running with a 30% to 35% profit, so there’s an operating profit.
There’s quite a lot of headroom between the 10% lease that they’re giving and the net operating income, but if for instance, they got it wrong, the investors who still own the property just enter into a new lease with another care home operator or appoint another manager themselves.
Practically, our experience over the last two years has been excellent. We’ve visited these care homes, we’ve actually been very impressed with the operation and our investors have been enjoying the hands-off returns, with a number of them actually purchasing additional units in these care homes, which is really a testament to how well it is working. Many of our investors themselves are heading towards retirement or are overseas investors, so this type of hands-off investment really appeals to them.
I would want some eyes on the project; will One Touch Property always be involved in checking out the refurbished care homes, looking at the development, ensuring that respectable certified developers are doing the job?
Yes, certainly, I always tell people over the years, One Touch Property has been trading for eight years; we help people invest in UK property by sourcing high yield investments such as student accommodation, buy-to-let and these care homes. Regarding the care homes, the risks are minimised in the case that many of them are actually refurbishment projects, but all the developers that we work with, we check their financial backgrounds and see that they’re NHBC approved, which is similar to the programme in South Africa. With me being originally from South Africa, I have a unique position to understand the plight of South Africans. I want to minimise the risks and that’s why we seek out the very best developers. My team would typically visit South Africa every three months, so we can discuss the concerns that you have with investors face-to-face. In fact, our next trip is between the 30th of March and the 10th of April, so people, if they want to register their interest they can make contact with us.
Is the best way to do it through your website, onetouchinvestment.co.uk?
Yes, that’s perfect.
Is that where you can register an interest and book a meeting time?
Yes, definitely, it’s just on our ‘Contact Us’ page.
Arran, this sounds relatively simple to do from a bureaucratic point of view. Is the bureaucracy at a minimum?
Yes, I think the process is quite simple. What you’re doing is purchasing a leasehold title, which is similar to purchasing an apartment. You’re not actually investing in a company and in fact, with the changes in the UK laws it’s more tax-efficient for you to be purchasing a commercial property like this than a residential property in the UK. With the amount of overseas investors that have been investing in the UK, because it’s seen as a relatively safe environment, the government has put laws in which has made it more complicated for residential property. However, people shouldn’t be put off because as a care home, there are no additional taxes and you’d be purchasing through a UK registered lawyer who will investigate all the things for the transaction and actually explain it to you in clear English.