Retirement Village has Powerful Persuasion.

The words RETIREMENT VILLAGE have a powerful persuasion on older Australians.

An initial enquiry process for entering a retirement village may go something like this:-

• Selling Agent - The unit price is $850,000.00, close to those in the freehold development next door where you would obtain ownership but here you just get a conditional right to occupy.


• Enquirer -  What, I don't actually get ownership for $850,000.00, all I get is a conditional right to occupy!


• The Deferred Management Fee payable to this operator is 35% or $297,500.00 of that in-going price of $850,000.00.


• What, I don't get all my money back when I leave the property even though I only have conditional occupancy!


• Why do they call it a 'deferred' fee. Because you don't pay it until you leave.  But I will give it to you on entry in the $850,000.00.  No you don't pay it until you leave. But I will give it to you on entry in the $850,000.00.  No you don't pay it until you leave.  Can we move on!


• That 35% or $297,500.00 amount helps pay for the $2.5m communal recreational facilities and helps the operator make a profit so they can continue to provide this type of accommodation which is well liked by both State and Federal Governments.


• What!  You want me to believe you have made no profit over development costs at the $850,000 per unit price point. 


• You have over 100 units here so that $297,500.00 taken per unit totals $29.7m for a once only communal and recreation facility cost of $2.5M.


• Retirement village units turnover around every 8 years so you will get at least $29.7m now at the start of the village and then again around every 8 year period over the entire life of the village. Yes but we don't like to draw attention to that.


• You get 65% or $552,500.00 of that $850,000.00 in-going payment refunded but not until you depart the unit after say 5, 10, 15 years. 


• What!  But inflation will have decimated the present day value of my money by that time, I will struggle to have enough capital value to return to the property market or afford a nursing home placement.


• This has the capacity to put me into what people describe as the retirement village financial or poverty trap. Yes but we don't like to draw attention to that.


• The operator gets to use that 65% or $552,500.00 of that in-going payment interest free for their working capital needs or to repay their commercial borrowings or simply to invest for a profit until repayment on your exit.


• What!  But you have over 100 units here, that would generate an interest free cash pool of over $55.0m million dollars increasing over time as each unit increases in price.  Yes but we don't like to draw attention to that.


• Because the unit is owned by the operator, the operator keeps any capital gain.


• What!  I pay an in-going amount in the order of a purchase price but I do not share in any capital gain. Yes under this contract 100% of the capital gain goes to the operator.


• Although the unit is owned by the operator you must pay all the maintenance costs of the unit.


• What!  But you said I don't have ownership only conditional occupancy!


• Although the unit is owned by the operator you pay the full refurbishment cost of the unit on your departure, currently around $60,000.00.


• What!  $60,000.00 to refurbish the unit that I do not have ownership only conditional occupancy.  Yes that is the cost today but of course it will likely be more in 5, 10, 15 years time.


• Although all the units are owned by the operator you and your fellow residents pay all the maintenance costs associated with the common areas and the recreational facilities.


• What!  But you said I don't have ownership only conditional occupancy!


• To summarise, you and other residents pay an in-going amount near to or commensurate with an ownership cost but the operator retains ownership and you get only conditional occupancy. The operator keeps 35% of this in-going amount for their purposes and uses the other 65% interest free until refunded to you on exit.  The residents pay all maintenance costs on the units and on both the communal property and the recreation facilities. The residents pay the full refurbishment cost of the unit they occupied upon departure from the village. The operator as owner of the unit keeps the value of any capital gain on the unit. 


• Isn't this form of retirement accommodation just an outdated system originally designed for not for profit entities but is now dominated by private enterprise. It simply accelerates the transfer of the lifetime savings of older Australians into the hands of private enterprise under the guise of buying a lifestyle not real estate.  Perhaps but we don't like to draw attention to that.


• Property developers in capital cities and areas like the Gold Coast can build a large unit complex with communal recreational facilities then market them to owner occupiers or rental market investors, they make their profit and move on to their next development. Wouldn't this system better protect the capital value of older Australians?   Yes but we don't like to draw attention to that.


• Are you really sure this is all legal.


• Oh yes it is all clearly enshrined in State Government legislation.


• Isn't it the role of governments to protect it's citizens, not to continue an outdated residential accommodation scheme that actually generates financial harm to these citizens.  Perhaps but we don't make the rules, the State Governments do!


• How long can this go on for.


• Oh they propose tinkering with common contracts, pre-sale information, perhaps a new watchdog, industry protocols, industry accreditation but until governments fix the heart of the legislation nothing will stop this, but we don't like to draw attention to that.


• What do you mean by fix the heart of the legislation. 


• In the Victorian legislation for the property to be officially termed a 'retirement village' you can only purchase a right to become a resident, the developer although obtaining a price in the order of a purchase price does not by law have to transfer ownership nor can they rent it to you. 


• This hardly seems fair on older Australians compared to other forms of residential accommodation does it?   Perhaps but we don't make the rules, the State Governments do!


• These State Governments and the Federal Government don't really understand how this system works do they and particularly what it does to the hard earned life savings of older Australians.      Perhaps but we don't make the rules, the State Governments do!                                                                                                           

Despite a range of terms and conditions as described above, an increasing number of older Australians choose to live in a retirement village..

A Retirement Village unit, would you pay to live in one?