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Thursday, 14 June 2018

Perseverance Pays Off for Retirement Village Residents

The Power of One -

This story epitomises the industry, what can go wrong in a village and how hard it can be to fix it.

This was not about nickle and dimes, this was about big dollars.

Wednesday, 13 June 2018

Capital Gains Essential For Retirement Village Residents

Access to capital gains is essential to retirement village residents by providing some protection from a slide in their capital value over their occupancy.

A flat or falling property market will pose financial risks for many residents over their period of occupancy.

Retirement village contracts contain various models when it comes to who gets the capital gain. Some contracts grant the resident 100% of the gain, some have a sharing clause such as 50/50 whilst in some contracts the resident gets no share of any capital gain.

Prospective residents need to be aware that contracts that grant capital gains to the residents generally have a clause where the resident is also responsible for capital losses to the same ration of gains.

The following table charts the potential differing impacts on a resident from varying capital gain rates achieved over their period of occupancy. The industry average occupancy period in a retirement village is 7 years.

Tuesday, 5 June 2018

Family Home or Retirement Village

A big decision for Australian retirees. Federal governments are increasingly encouraging retirees to stay longer in their place of residence which may not necessarily be the original family home.

Contradictory encouragement comes with incentives for older retirees to sell the family home and downsize into a unit, flat or into some form of retirement community living.

In the example below the table examines the potential financial impact on a retiree between retaining the family home or moving into a retirement village.

It must be noted that such a move can be a complex decision and requires sound, independent, professional advice whenever possible, it can be more than just a dollars and cents decision.

Sunday, 3 June 2018

Retirement Village Poverty Trap

There can be a dramatic impact over time on the $ value of the refundable amount (in-going cost minus the deferred management fee) repayable to the resident on departure.

The impact arises from -
- Inflation
- Rising Property Prices
- Rising Aged Care Costs
- Rising Interest Rates
- Costs associated with a retirement village not generally associated with a residential lease - maintenance, refurbishment, administration.

This impact has the capacity to create a 'poverty trap' for some residents should they choose to leave the village to re-enter the property market or need to meet aged care costs.

retirement village poverty trap

Industry data shows 41% of retirement village residents receive no share from the village operator of the appreciation in property value which may have offered some protection against the above situation.

The higher the percentage of lifetime savings used to enter the retirement village, the higher the likely hood of the resident being trapped into their current situation and unable to change direction without family assistance.

There is no legislative protection for retirees from this so named retirement village financial/poverty trap.

Wednesday, 30 May 2018

Residential Tenancy $ Outperforms Retirement Village $

For retiree accommodation, a standard residential tenancy can outperform a retirement village in pure financial terms.

At the 7 year mark the retirement village industry average occupancy period, the example below shows the retiree in a residential tenancy is $241,471.00 dollars in front of the retiree in the retirement village.

Such is the upfront pain in the Deferred Management Fee model used by the industry, it takes over 17 years for the retiree in the retirement village to draw level in financial terms.

There are aspects to life in a retirement village the retirees value that do not have a definable $ value, on the flip side retirees must pay for facilities etc. that they do not use.

Saturday, 26 May 2018

Retirement Village Financial Pain

The retirement village financial pain shows clearly in this table prepared by , especially when it is compared to a standard residential tenancy.

In the table below four different retirement village payment models are examined and compared. All are measured by the loss of capital value over the period of the occupancy.

It must be noted that retirement villages generally offer recreational and social facilities to their residents together with conditional security of tenure. These are not generally available with a standard residential tenancy within the community. What is striking in the analysis however is the cost of this over and above the market driven cost of a residential tenancy generally.

All retirement village examples have the common parameters of an $800,000.00 entry cost with a Deferred Management Fee rate of 36% drawn over the first four years of occupancy, devaluation of the refundable amount (entry price minus the DMF and held by the operator until departure) at a cpi rate of 2.5%paa maintenance charge of $150.00 per week at in-going with an annual cpi increase of 2.5%pa, a unit refurbishment charge of $50,000.00 at in-going with an annual cpi increase of 2.5%pa.

Retirement village maintenance fees, devaluation of the refundable amount over the period of the occupancy and refurbishment costs are including in the analysis. The retirement village resident does not gain ownership of the property, only a lease or licence to occupy. The most direct comparison to this style of retiree accommodation in relation to overall financial impact is a standard residential tenancy within the general community.

The five different retiree accommodation models are:-
  • Residential Tenancy - Rental return to landlord 5% with a 2.5%pa capital gain. 3%pa investment return to tenant on their retained $800,000.00.                       
  • Retirement village residents
  • RED - Deferred Management Fee calculated on the ENTRY price. 100% of the capital gain to the RESIDENT.                                                                                        
  • GREEN - Deferred Management Fee calculated on the EXIT price. 100% of the capital gain to the RESIDENT.                                              
  • YELLOW - Deferred Management Fee calculated on the ENTRY price. 100% of the capital gain to the OPERATOR.                                        
  • BLUE - Deferred Management Fee calculated on the EXIT price. 100% of the capital gain to the OPERATOR.                                                

At the SEVEN (7) year occupancy mark (industry average period of a retirement village occupancy) the capital value of the retiree has fallen from $800,000.00 to:-
  • Residential Tenancy - $682,002.00 - A loss of 26%.     
  • Retirement village residents
  • RED - $428,628.00 - A loss of 55%. 
  • GREEN - $383,797.00 - A loss of 60%.
  • YELLOW - $304,096.00 - A loss of 62%.
  • BLUE - $259,264.00 - A loss of 73%.

At the FIFTEEN (15) year occupancy mark (industry average period of a retirement village occupancy) the capital value of the retiree has fallen from $800,000.00 to:-
  • Residential Tenancy - $529,097.00 - A loss of 53%.     
  • Retirement village residents
  • RED - $331,865.00 - A loss of 71%.
  • GREEN - $251,171.00 - A loss of 78%.
  • YELLOW - $107,716.00 - A loss of 87%.
  • BLUE - $ 27,022.00 - A loss of 98%.

At the TWENTY FIVE (25) year occupancy mark (industry average period of a retirement village occupancy) the capital value of the retiree has fallen from $800,000.00 to:-
  • Residential Tenancy - $308,712.00 - A loss of 79%.     
  • Retirement village residents
  • RED  - $  89,055.00 - A loss of 94%.
  • GREEN - $      0.00 - A loss of 100%.
  • YELLOW - $-167,128.00 - A loss of 121%.
  • BLUE - $-259,354.00 - A loss of 117%.

Sunday, 20 May 2018

Retirement Village Residents Make Their Complaint Count

Retirement Village Residents Make Their Complaint Count

Perseverance by one retirement village resident has paid off for around 50 residents of a Victorian retirement village. Although not directly affected the resident took up an issue on behalf of those residents who were facing a large collective financial impost. Potentially in the order of two million dollars plus the matter resulted from a breach of law by the village operator.

The Victorian State Government introduced new provisions into the Retirement Villages Act 1986 effective from July 1 2014.  Section 19 of the Act made it mandatory for retirement village operators to provide a prospective resident with a Fact Sheet before executing a contract.

For a period of approximately 18 months after July 1 2014 the village operator failed to meet this provision of section 21A of the Act. There is a legislated penalty in the order of $30,000.00 for each occurrence.

For a period following the above the village operator issued fact sheets with a material difference to the contract. The fact sheet advised prospective residents they will NOT be responsible for the refurbishment of their unit on departure from the Terrace whereas the contract states that they WILL be responsible for the refurbishment costs. There is a legislated penalty in the order of $8,000.00 for each occurrence where a person knowingly issues a fact sheet with details contrary to the contract.

Refurbishment costs were highlighted on page 55 of the March 2017 report of the Victorian State Government LSIC Committee inquiry into retirement living - Refurbishment costs could be as high as $60,000.00 per unit

June 2016 - The resident raised the issue with the Residents Committee who wrote and advised management of the problem. Village management subsequently advised the committee "We are checking the information contained in the Factsheet and Disclosure statement and will correct any information that is inaccurate as a priority".

July 2016 - Management refused to release to the Residents Committee a copy of a fact sheet and a contract currently being issued to any prospective resident. The committee wished to ensure the matter had been corrected.

August 2016 - The resident lodged a formal complaint with Consumer Affairs Victoria as evidence came to light that the matter had not been corrected.

January 2017 - The resident subsequently lodged a complaint with CAV as there had been no follow up from CAV with the resident over the matter. The resident was advised that as they (the resident) was not directly impacted by the matter and was merely raising the issue in the interest of fellow residents, the resident was regarded as an informant rather than a complainant and therefore not entitled to any further information.

April 2017 -  The resident advised CAV that as a result of information provided to the State Government inquiry into Retirement Living residents could be facing a refurbishment cost in the order of $50,000.00 per unit, the potential cost to residents from the breach of law by the operator was in the order of two million dollars plus. The operator would receive the cash benefit of this two million dollars plus over time. The resident was advised in a telephone call with a CAV officer that the CAV priority in the matter was simply to achieve compliance going forward.

May 2017 - The resident wrote to the Board of Governors and each member of the Board of Governors personally.  Evidence had continued to come to light that the matter had still not been corrected and there was consideration of a merger with another organisation. The resident received no response to any of the letters.

July 2017 - The resident wrote to the local newspaper providing background to the matter and seeking an article be published which may assist in obtaining redress. No article was ever published.

July 2017 - The resident wrote a letter about the matter for insertion in the 'Letters to the Editor' section of the local newspaper. The letter was never published.

April 2018 - The resident wrote to the new chairperson of the Board of Governors. A meeting was convened where the resident provided background to the matter, highlighted the breach of Retirement Villages Act 1986 by the organisation and the substantial financial penalty flowing to the residents from this breach. The chairperson advised the matter would be raised with the Board.   The Board of Governors and upper management had been transformed following suspension of accreditation stemming from an influenza outbreak in the adjacent aged care facility in 2017.

May 14 2018 - The resident raised the issue again directly with senior personnel from Consumer Affairs Victoria at a meeting of statewide retirement village residents held in Melbourne. The meeting titled 'Make Your Complaint Count' was convened by the Housing for the Aged Action Group in conjunction with the Consumer Action Law CenterResidents of Retirement Villages Victoria and the Council of the Ageing Victoria.

May 18 2018 - The new chairperson of the village Board of Governors issued a letter to current residents advising that amendments would be made to any relevant contract.  Amendments would reflect the statement in the fact sheet that a resident would not be responsible to pay a unit refurbishment cost on departure. Future fact sheets would be amended to reflect the terms of the contract in that new residents would be responsible for the refurbishment cost of the unit on their departure from the village.

Although a long drawn out process perseverance paid off for those residents who had entered the village post July 1 2014 saving them a substantial amount of money.

Ed Note:- This matter epitomizes aspects of the retirement village industry. A breach of the law by an operator and then continuing knowingly of the breach, together with a failure of the regulator Consumer Affairs Victoria to enforce the law for which it was responsible and to take firm action on behalf of those people it is sworn to defend. Each of the above contributed to the matter continuing over a period longer than it should have and but for the perseverance on one village resident would still be happening. This was not about nickle and dimes, this was about dollars, big dollars, millions of dollars that would have been taken from retirees in contravention of the law. The law was clearly on the side of the retirement village residents. It was a lack of access to affordable, quick, decisive enforcement of the law that failed them most.

Retirement Village Residents Make Their Complaint Count

Retirement Village Residents Make Their Complaint Count

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