2018 Retirement Village Core Problems

2018 Retirement Village Core Problems - Will 2018 be the year the retirement village industry is finally fixed, where the commercial interests of the operators are balanced with a right of retirees to obtain residential accommodation in their retirement years at a price and value commensurate with the general property market.

We have been here before of course such as way back in September 2007.



 

Legislators and regulators simply do not understand the two deep-seated core problems:

• Retirement Village Operators are not required to offer a Residential Tenancy Agreement as part of any mix of occupancy contractural arrangements.


• The Deferred Management Fee business model hides a grossly excessive transfer of capital value from retirees to operators.

 

1. The following graphic show the weakness in the Victorian legislation that states that there must be an ingoing payment and it cannot be classified as rent.



 

2. The following graphic shows the grossly excessive transfer of capital value from a retiree to a village operator over the industry average occupancy period of 7 years. The table examines where an ingoing payment is $850,000.00, the Deferred Management Fee is 35% of the ingoing amount, any capital gain is retained by the operator, the resident pays fees to maintain and refurbish the asset owned by the operator, the retirees loses earnings and value on the refundable amount (ingoing amount minus the deferred management fee). This amount is held by the operator for their own use and is not repayable until the resident leaves the village.



Retirement Village residents all over Australia hope 2018 will be the year these core problems are fixed.  Yes have standardised legislation. Yes have easy to read and understand contracts. Yes have laws that are  policed and enforced but without a fix to these two basic core problems nothing will really change for Australian retirees.

Will 2018 be the year, history says it will not as legislators and regulators have been here many times and failed.  They are seduced by the well crafted words of the industry, they don't listen to the arguments put forward by people at the coal face the village residents, and don't have a real understanding of how the retirement village industry works themselves.

Let us hope the legislators and regulators surprise us but I won't be holding my breath, their track record is too clearly marked. Tinkering at the edges YES, real deep-seated reform NO.

2018 Retirement Village Core Problems.



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Amend Retirement Village Legislation

Amend Retirement Village Legislation, long time advocate for reforms to the Victorian Retirement Village Act 1986 Charles Adams has penned a letter to Dr. Maree Petersen, a senior lecturer in Social Work at the University of Queensland.

Dr. Petersen led a University of Queensland School of Nursing, Midwifery and Social Work study into retirement villages  https://www.uq.edu.au/news/article/2017/12/you-can-check-out-any-time-you-you-can-never-leave .

Mr. Adams in his letter asks Dr. Petersen to give greater weight to a Victorian legislation problem which has permeated the industry.

"By far the most important deficiency of retirement villages in Australasia is the definition of a village legislated in Victoria in their RV Act 1986. That mandates entry requires the prepayment of an ingoing contribution also called a donation.

The resulting contracts are so skewed in the developer/operators favour that that model has been adopted Australia wide regardless of all other states and territories legislation.

That contract model does three things

1. Generates very complex contracts that are incomprehensible to, in my estimate, over 90% of all lessees, also called residents. Those contracts are a very serious impediment to many people considering villages and results in a very low uptake of 5.7% of the over 65 demographic, across Australia. This figure is quoted by the Property Council of Australia at a meeting I attended earlier this year. That compares with 15% in the US where conventional residential tenancy contracts apply, and are well understood


2. Frontloads the monthly equivalent rental rate into the first few years of contracts, which makes it effectively a ransom that prevents some dissatisfied lessees ability to leave. They can no longer afford to go into other comparable downsized housing.


3. This contract model hides the very high effective rental rate. It hides it by making it impractical to calculate because of all the variables and time spread across the duration of contracts."

Mr. Adams proposes a change to the legislative definition of a retirement village as below,

Proposed definition for a Victorian Retirement Village.

1. Retirement village means a group of leased, with secure tenure residential tenancy dwellings, forming a community, the majority of which is retired persons, with all services for the common property included in the rental price.


2. Residential tenancy contracts, with monthly rentals are mandatory. Other contract models may be offered optionally.

This would make it compulsory for retirement village operators to offer a residential tenancy contract being the most transparent as to pricing and the most easily understood by retirees, families and professional advisors.

Amend Retirement Village Legislation



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Retirement Village Residents Hurt Financially

Retirement Village Residents Hurt Financially -There are some practices in the retirement village industry that hurt residents financially, some village residents may have their capital wealth completely wiped out.

See previous stories:-

• http://www.retvill.net/should-be-outlawed/


• http://www.retvill.net/retirement-village-residents-decimated-financially/

The 2017 PwC/Property Council Retirement Census shows four accommodation models used by operators. 41% of the industry offer accommodation models offered that do serious financial harm to village residents from which they cannot recover.

Their ability to re-enter the property market or satisfactorily fund their own aged care placement is compromised, leading to that often quoted 'poverty or financial trap' for retirement village residents.

Download this paper prepared by a retirement village resident explaining how the financial damage occurs without any early warning signal to alert prospective retirees.

If 2018 is to be the year of change for the retirement village industry, legislators need to have an understanding of the deep-seated problems. Changes are coming but will those changes go far enough to protect Australian retirees well into the future.

Take the link below to download a PDF copy of the paper and send it to your local state and federal politician.

Click here to download a copy:-  Village Residents Hurt Financially




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Retirement Village Residents Decimated Financially

Retirement Village Residents Decimated Financially

Differing Financial Impacts on Retirees of Four Retirement Village Residential Occupancy Models.

The 2017 PwC/Property Council Retirement Census shows that:-

• 21% of retirees offered a retirement village occupancy model that has the capacity to completely decimate the amount due for repayment to the resident on departure.

• 20% of retirees offered a retirement village occupancy model that has the capacity to drastically reduce the ‘present day value’ of the amount due for repayment to the resident on departure.

The longer the period of occupancy the greater the damage done. It is quite possible for residents with a longer term occupancy period to actually have a debt to the operator on departure from the village.

All caused by the combination of factors:-

• The deferred management fee calculated on the exit price of the unit rather than the entry price.


• The increase in the value of the unit occupied (capital gain) retained by the village operator.


• The devaluing effect of inflation on the refundable amount (ingoing amount minus the deferred management fee) retained by the operator for their own use until refunded to the resident on departure.


• Fees paid to maintain an asset owned by the village operator.  A resident pays an ingoing amount often commensurate with an ownership cost but only obtains conditional occupancy.

Differing financial outcomes of four retirees over the four occupancy models.

The Property Council Census records the average occupancy period in a retirement village as 7 years. Table 3 below examines the financial journey of 4 retirees over this 7 year period, each choose a different occupancy model being offered by retirement village operators:-

1. 21% of Retirement Villages offer this accommodation model - Deferred Management Fee on the EXIT Price, Capital Gain to the Operator.  Financial outcome - Capital base of Retiree at Ingoing - $500,000.00 down to $ -2938.00 after 7 years. A weekly cost of $1377.91 for conditional residential accommodation.


2. 20% of Retirement Villages offer this accommodation model - Deferred Management Fee on the ENTRY Price, Capital Gain to the Operator.  Financial outcome - Capital base of Retiree at Ingoing - $500,000.00, down to $ 81,043.00 after 7 years. A weekly cost of $1150.98 for conditional residential accommodation.


3. 14% of Retirement Villages offer this accommodation model - Deferred Management Fee on the EXIT Price, Capital Gain to the Resident.  Financial outcome - Capital base of Retiree at Ingoing - $500,000.00, down to $237,094.00.00 after 7 years. A weekly cost of $ 722.26 for conditional residential accommodation.


4. 45% of Retirement Villages offer this accommodation model  - Deferred Management Fee on the ENTRY Price, Capital Gain to the Resident.  Financial outcome - Capital base of Retiree at Ingoing - $500,000.00, down to $321,121.00 after 7 years. A weekly cost of $ 491.42 for conditional residential accommodation.

Note:- A residential rental of a commensurate value property within the general community would be in the order of $480.76, a 5% per annum return to the landlord.

Table .

Currently there is no legislated protection for retirees against outcomes 1 and 2.

Retirement Village Residents Decimated Financially

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Should Be Outlawed

The 2017 PwC/Property Council Retirement Census shows that:-

1. 21% of interested retirees are being offered a retirement village occupancy model that has the capacity to completely decimate the amount due for repayment to the resident on their departure from the village.

1. 20% of interested retirees are being offered a retirement village occupancy model that has the capacity to drastically reduce the ‘present day value’ of the amount due for repayment to the resident on their departure from the village.

The longer the period of occupancy the greater the damage done to the refundable amount. It is quite possible for residents with a longer term occupancy period to actually have a debt to the operator on departure from the village.

All this is caused by a combination of factors:-

• A deferred management fee calculated on the outgoing price of the unit rather than the in-going price.


• 100% of any increase in the value of the unit occupied (capital gain) retained by the village operator.


• The devaluing effect of inflation on the refundable amount (ingoing amount minus the deferred management fee) which is retained by the operator for their own use until the resident departs the village.

Issue 1.  Deferred Management Fee calculated on the exit price, 100% of the capital gain to the operator.

Table 1 below shows that as the capital value of the unit increases, the deferred management fee charged increases, the refundable amount due to the village resident on departure decreases.

Should the capital gain over the length of the occupancy be high enough the outgoing resident could lose up to 100% of the refundable amount or worse still be in a position where they owe the operator money.

Note: Currently there is no legislated protection for retirees against this business model.

Table 1



Table 1 above does not include unit refurbishment costs or exit fees which would make the financial situation of the retiree even worse.

This Retirement Village Model Should Be Outlawed - The retiree in the occupancy model above (35% DMF on EXIT price, 100% capital gain to operator) has been subjected to a reducing refundable amount (possibly negative) over the period of the occupancy plus exit costs whilst the operator has seen a growth in capital value of the asset from $500,000.00 to in the order of $2,000,000.00. The industry is stating that 21% of all contracts are issued in this form.

Retirees should be given legislated protection against the business model detailed above.

For those who feel the above scenario will never come to pass, eg: a 300% increase in unit value, please examine the recorded increase in real estate values in Table 3 and Table 4.

 

Issue 2.  Deferred Management Fee calculated on the entry price, 100% of the capital gain to the operator.

Table 2 below compares the retirement village occupancy model with three other models offered in the market place. Occupancy model 2 shows the adverse financial position of the village resident on leaving the village as opposed to the occupancy models in option 3 and option 4.

Note: Currently there is no legislated protection for retirees against this business model.

Table 2.



Table 2 above does not include unit refurbishment costs or exit fees which would make the financial situation of the retiree even worse.

The retiree in occupancy model 2 above (35% DMF on ENTRY price, 100% capital gain to operator) has been subjected to a stagnant refundable amount of $325,000.00 ravaged by inflation over the occupancy period plus exit costs whilst the operator has seen a growth in capital value of the asset from $500,000.00 to in the order of $2,000,000.00. The industry is stating that 20% of all contracts are issued in this form.

Retirees should be given legislated protection against the business model detailed in occupancy model 1 and occupancy model 2.

For those who feel the above scenario will never come to pass, eg: a 300% increase in unit value, please examine the recorded increase in real estate values in Table 3 and Table 4.

 

Table 3 below shows the capital growth in the Melbourne housing market for the period 1985-2015.  Melbourne Property Market 1985 - 2015.

Table 3.

[caption id="attachment_325" align="alignnone" width="667"] Melbourne Residential Propoerty[/caption]

 

Table 4 below shows the capital growth in the Australian housing market.

Table 4.



 

Residents Must Speak Out

"Retirement village residents should speak out because change must come and only by speaking out will anyone with the capacity to bring about that change take notice"

Retirement Village Residents must continue to speak out on the issues they are facing whilst living in retirement villages. For a variety of reasons they can be suffering financially, socially and even emotionally at the hands of the so called 'retirement village system'.

A system that empowers operators over residents, places justice at the end of a very long road, places roadblocks on the road that deter vulnerable retirees from completing or even starting that journey.

A system that despite creating laws and regulations in the interest of fair play does not demand legislators and regulators ensure laws and regulations are adhered to and that retirees obtain the protections available to them under these laws.

One retirement village resident recently wrote:-

"There are powerful commercial forces pushing against residents, the industry will fight hard to defend this in-going payment ‘deferred management fee’ business model. A business model which creates an excessive reduction in capital wealth for retirees over their period of occupancy whilst transferring this capital wealth to operators. (see chart below) Over my 10 years in a retirement village I have seen, experienced, or been the victim of the paper tiger approach of Consumer Affairs Victoria.  Suffered the intimidation of an operator over multiple issues I have raised on behalf of myself and/or other residents. Won a case in VCAT that forced the operator to refund $300,000.00 to the residents for charging a fee over a 10+ year period that was deemed contrary to the provisions of the Act. The residents committee where I live has just carried a motion of ‘no confidence’ in the recording of the minutes of the Residents Annual General Meeting after multiple years of problems with the minutes. This of course is simply life in a retirement village for some, not everyone, but certainly for some. Unfortunately the deferred management fee model moves us all closer to a position where we cannot make a U-turn because of the fee, loss of earnings on the refundable amount, the impact of inflation on the ‘present day value’ of the refundable amount, exit fees etc.

Yes, retirement village residents should speak out because change must come and only by speaking out will anyone with the capacity to bring about that change take notice."






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Victorian Retirement Village Legislation Flawed

Victorian Retirement Village Act Proposed Cost Transparent Definition.

Victorian Retirement Village Legislation Flawed - Long time advocate for reforms to the Victorian Retirement Village Act 1986 Charles Adams says the Victorian Retirement Village Legislation is fundamentally flawed. Flawed by not allowing residential tenancy contracts with monthly rentals as the mandatory standard legislated definition of a retirement village, with other contract models only available as options.



He believes it should be mandatory for retirement village operators to offer all prospective residents’ residential tenancy contracts alongside the more traditional loan/lease, deferred management fee' style contract. Loan/Lease hides contract costs until months after the contract is terminated, making that model opaque.

See also:- http://www.retvill.net/retirement-village-legislative-reforms/

In a submission to the Minister for Consumer Affairs, The Shadow Minister and the spokesperson for the Greens Party,  Charles states:-

"The No.1 Victorian legislative reform required is a change to the current requirement that to enter a retirement village you must pay an in-going contribution and that contribution cannot be classified as rent.

The requirement for an inclusive rental price (residential tenancy) is the only known contract that provides the transparent cost rate at entry, necessary for cost comparison, and free market competition."

The fairer definition proposed for a Retirement Village.

1. Retirement village means a group of leased, with secure tenure, dwellings, forming a community, the majority of which is retired persons, with all services for the common property included in the rental price.


2. Residential tenancy contracts, with monthly rentals are mandatory. Other contract models may only be offered as an option.

Given the revelations that surrounded retirement villages during 2016 and 2017, Charles believes now is the time to act on the legislated definition of a retirement village.  "This proposed change has the capacity to provide transparency to retirees as to the actual cost of residential accommodation within a retirement village unlike the current deferred management fee model."

"So long as the present biased definition continues, people will continue to be hampered by the lack of free market competition in the retiree downsizing market, and some trapped by extraordinarily high exit costs."

 


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Perfect Storm for Seniors in 2017

Perfect Storm for Seniors in 2017 - In the latest (12/17) edition The Senior Newspaper encapsulates 2017 for Australian seniors by describing the revelations about Aged Care together with the revelations about Retirement Villages as being the 'Perfect Storm'.

The hopes and aspirations of many Australian seniors and their families were summed up in the final paragraph of the editorial:-

"Let's hope 2018 is the year it all comes together: that our politicians get it right so everyone can rest assured they will be able to age with dignity and respect, no matter what side of the financial railway line they live."

https://www.thesenior.com.au/


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Angst for Retirement Village Residents

More angst for Retirement Village residents but of a different style than has been reported before.

Angst for Retirement Village Residents - The residents committee in a not-for-profit retirement village in regional Victoria has passed a motion of no-confidence in the minutes of the Annual Meeting of Residents recorded and distributed by village management.

This annual meeting of residents is a formal affair as required by section 34 of the Retirement villages Act Victoria 1986.

One village resident stated privately that "There has been a growing problem with the accuracy of the minutes for the Annual General Meeting of residents. This year the issues were inclusive of:-

• Correspondence  lost by management relating to the placement of items on the meeting agenda.


• An apology to the resident by the Chairman for the lost correspondence and the subsequent failure to place the requested item on the meeting agenda was not recorded in the minutes of the meeting.


• A statement attributed to the residents committee but not made by the residents committee was recorded in the minutes.


• Votes were taken at the AGM on multiple motions during the meeting  but the motions and the results of the vote not recorded in the minutes.'

The resident says 'this is indicative of what can be just everyday life in a retirement village for some retirees. Residents can be totally dependent on the level of morality of the operator with little or no support from organisations such as Consumer Affairs Victoria. In this same village the operator made errors in contract preparation contrary to the provisions of the Act. This was reported to Consumer Affairs who simply told the operator to not do it again despite the fact that the operator will benefit to the tune of $1.5 million dollars plus from breaking the law whilst the residents will be out of pocket by $1.5m dollars. Again this is simply life in a Retirement Village for some retirees."

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Coroner Wants Better Aged Care Recording.

Coroner recommends care workers document changes in residents’ health.

In a story by By Megan Stoyles on December 6, 2017 in Research & Clinical.

Coroner Wants Better Aged Care Recording - A Queensland coroner has recommended that personal care workers and assistants in nursing be required to enter any variation in a resident’s condition in their progress notes, following the health-related death of an 86-year-old aged care resident.

The case was reported and reviewed in the November edition of the Victorian Institute of Forensic Medicine’s (VIFM) Residential Aged Care Communique by Professor Joseph Ibrahim from Monash University.

It involved a resident residing in the low-level care section of a residential aged care facility, which had a registered nurse available if called upon by personal care workers.

After the resident notified staff he was unwell on a Sunday morning, he was reviewed by a registered nurse, examined by his GP the following day and died the evening after that.

See the full story here:- https://www.australianageingagenda.com.au/2017/12/06/coroner-recommends-care-workers-document-changes-residents-health/?platform=hootsuite


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Retirement Village Story Wins Walkley

Fairfax’s Adele Ferguson has won a Walkley Award for her retirement village investigative articles.

Retirement Village Story Wins Walkley - Regarded as the pinnacle for quality journalism, Ferguson, together with Sarah Danckert and Klaus Toft, were awarded a Walkley Award for Investigative Journalism last week for their “Bleed Them Dry Until They Die” project, a joint Fairfax Media/ABC investigation into Aveo retirement villages.

ABC Story here:- http://www.abc.net.au/4corners/bleeding-them-dry-promo/8643348

SMH Story here:- http://www.smh.com.au/interactive/2017/retirement-racket/bleed-them-dry/




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Serious Concerns Treatment Of Elderly

Serious Concerns Treatment Of Elderly

ABC News Reports:-

Aged care report card reveals 'serious concerns' about treatment of elderly in Victoria.

"Documents obtained by the ABC under Freedom of Information (FOI) laws detail serious concerns around the treatment of residents in aged care homes across country Victoria, which victims say is due to a shortfall in staff ratios and skillsets.

Patients being hospitalised with burns and allegations of stalking and harassment by mentally ill residents, are among some of the most worrying cases uncovered in western Victoria alone."

Full article here:-  Aged care report card reveals 'serious concerns' about treatment of elderly in Victoria.

Serious Concerns Treatment Of Elderly.




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