Respected finance reporter Alan Kohler wrote in an article titled Retirement Village rorts: the booming scandal in 2014 -
"Taking them one at a time, deferred fees are where you buy a unit in a retirement village at full price, but when the time comes to sell you have to pay the village owner a large percentage of what you get."
"There are a variety of deferred fee schemes contained in retirement village contracts and they all rely on the fact that when an elderly couple signs it, they tend not to pay much attention to what might happen to the assets when they die."
In a retirement village the retiree does not gain ownership of the property, the retiree pays the costs of ownership, the retiree does not get the benefits of ownership. Through the deferred management fee, maintenance costs, exit costs and the impact of inflation the retiree faces a dramatic loss in asset value in what can be a very short period of occupancy.
The retirement village industry advises prospective residents that you are not buying property you are buying a lifestyle. The question has to be put however but at what point is this lifestyle cost fair and reasonable.
The table below shows the various impacts on the value of the capital base of a retiree together with a comparison of simply renting within the general community.
For serious retirement village reform in the best interest of retirees legislators should give consideration to the following:-
- The use of the Deferred Management Fee model should be restricted to not-for-profit organisations.
- If there is no discount to the entry cost there is no justification for a Deferred Management Fee.
- Where there is a Deferred Management Fee it should reflect only an applicable discount from a property value available generally commensurate with the retirement village in-going fee.
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