Thursday, 30 July 2020

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A Decade of Lies Exposed

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Monday, 27 July 2020

Retirement Village Financial Deception


Loan/Lease, Loan/Licence retirement villages as discussed here constitute 74% of the marketplace, 72% are owned by commercial 'for-profit' operators.

Example of a loan/lease retirement village. (no share of capital gain to resident, around 50% of the marketplace.)

  • A retiree pays say $800,000 to enter a Retirement Village, not to own, simply to obtain a conditional right to occupancy.
  • This entry cost is often in the order of an actual 'purchase' cost of a similar specification unit within the general community. Communal facilities, longer term security of tenure often the only defining differences.
  • Operator takes $288,000 (36%) of this entry payment over the first 4 years by way of a deceptively named 'deferred management fee'.
  • Operator now holds a $512,000 interest free loan from the occupant until after they depart from the village. Government legislation protects the operator from having to repay the loan on the day the occupant departs, under state government laws it can be up to six months or more.
  • The village occupant pays all management, maintenance, refurbishment, selling costs on a property they will never own, only occupy. All the financial responsibilities of property ownership but in reality only conditional occupancy.
  • Average industry maintenance/management fees are stated as $564 per month. The resident would pay in the order of $564 x 12mths x 10yrs = $67,680.00 in fees over the occupancy period on a property not owned by them, only a conditional right to occupy.
  • On departure the resident can pay a unit refurbishment cost in the order of $50,000.00.
  • The value of the occupant's $512,000 loan to the operator would be impacted by inflation (at say 2%pa ) totalling a devaluation over the 10 year occupancy period of some $93,658.72.
  • Present day value on departure of the refundable amount payable to a departing retiree after 10 years is now down from the original $800,000 at entry to just $300,661.28 on departure. A lifetime of savings some $800,000.00 reduced by $499,338.72 to just $300,661.28 in 10 years.
  • This -$499,338.72 capital value reduction having a direct impact on the ability of the retiree to – 1. fund a personal change in circumstances, 2. fund Home Care or Residential Aged Care costs, leave financial legacy for their family or beneficiaries.
  • Across the entire village, the combined total loss to just 100 retirees would be in the order of 100 x -$499,338.72 per retiree = $-49.93 million dollars.
Interestingly had the retiree remained in the family home, at say a modest 4%pa capital appreciation, the value of the $800,000 family home over that same 10 year period would have grown to $1,184,195.43, a capital value increase of $+384,195.43. The 'retirement village' decision taken by the retiree generates a grand total capital value loss over the 10 years of -$883,534.20 ($-499338.72 + $-384,195.43).

Over that same 10 year period the village operator has gained -
100 units x $93,658.72 in maintenance/management fees. Total = $09,365,872.00
100 units x $50,000.00 in refurbishment fees. Total = $05,000,000.00
100 units x $384,195.43 in capital appreciation. Total = $38,419,543.00
100 units x $288,000.00 in Deferred Management fees. Total = $28,800,000.00
Grand Total = $81,585,415.00

In just 1 x 10 year period, in just one retirement village of 100 units, retirees lost capital value to a total of $-88.3 million dollars whilst the operator gained $+81.5 million dollars.

An Annual Return on Asset for the operator in the order of 10% per annum. Incredibly but not surprisingly if the operator needed to leave say $10 million dollars of working capital in the business, a total Annual Return on Investment would be a staggering 80% per annum.
The retirement village industry is best summed up by the following statement -

Governments, Taxpayers, Retirees and their Families need to be aware that what we are talking about here is the transfer of personal and inter-generational wealth, not to fund a personal change in circumstance, not to fund home care or aged care costs, not for the benefit of families or beneficiaries, but into the pockets of hard nosed, profit driven, commercial operators.”

Legislators with policies that encourage retirees to cash in the value of the family home and enter a loan/lease retirement village fail to understand the staggering capital wealth reduction inflicted upon the retirees and their families. Australian taxpayers are then called upon to help fund that same retiree's Home Care or Residential Aged Care costs as a direct result of those policies.

This transfer of wealth from retirees to profit driven commercial operators takes place under a protective legislative umbrella of the state governments, all under the guise of the benevolent provision of retirement living. Any days of benevolence rather than profit in the retirement village industry are fast fading into history as 72% of retirement villages are owned by 'for-profit' operators. An industry that comes at a staggering financial cost to those retirees who innocently and naively enter the 'retirement village' financial trap.

Function of Government

The role of government is to create an environment for commerce to function whilst at the same time protecting retirees and particularly vulnerable retirees from both financial and emotional harm emanating from that function.

The Victorian Retirement Villages Act 1986 provides the environment for commerce to function but fails to fully protect retirees from financial and emotional harm as a result of it.

The Victorian legislative definition of a retirement village in demanding the payment of an 'in-going' amount without the transfer of property ownership is a major contributor to that financial and emotional harm suffered by retirees.


retvill.net

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