Deferred Management Fee

The Retirement Village Deferred Management Fee model creates an accelerated transfer of wealth from retirees to village owner/developers.

Table 1a below inclusive of inflationary adjustments shows the capital wealth for one unit transferred from a retiree to a village owner / developer over a 10 year period.

The table uses common contractural parameters within the industry although there can be variations.

Table 1a

 

[caption id="attachment_296" align="alignright" width="300"] retirement village poverty trap[/caption]

The major problem with the DMF model is that it was created decades ago to enable charity and not-for-profit organisations to provide retirement accommodation to retirees with limited financial resources, where they had little income but some capital.

Today in these private enterprise times the ingoing amount required to enter a retirement village is typically closer to or even at the price of a similar property within the general community. The Deferred Management Fee model is a way of hiding the high cost until the lessee leaves to go into assisted care.

All of this transfer of capital wealth to predominantly private investors comes at the direct cost of the life savings of Australian retirees. This has the capacity to place them at financial risk should the need arise for a change of direction in their life, eg: return to the property market or enter an aged care facility. 

 

 

 

 

 

Table 1b below shows accelerated returns to retirement village investors from the deferred management fee model in the order of 2 to 2.5 times that of an investor for a traditional residential investment unit.

These accelerated returns for a retirement village investor are driven by:-

1. 
   

   The property fully maintained and refurbished at the cost of the retiree

   
   


2. 
   

   Capital gain from the increase in value of the village property – can be subject to contract provisions

   
   


3. 
   

   Use of the retiree's refundable amount - 0% capital provided by the occupant – refundable only on the departure of the occupant

   
   


4. 
   

   Multiple deferred management fees over multiple occupancies – the shorter the deferred management fee payment period the greater the opportunity to charge a new maximum fee

   
   


5. 
   

   Deferred management fee charged on sale price - subject to contract provisions

   
   

Table 1b

If there is no discount to the entry cost there is no justification for a Deferred Management Fee.

If there is a Deferred Management Fee then it should reflect only the applicable discount.