Loan/Lease Retirement Villages can destroy the hard earned life savings of retirees. A primary issue is that to enter a loan/lease retirement village a retiree pays an entry cost often commensurate or near to an outright purchase price within the general community. However the retiree does not obtain property ownership only occupancy. The benefits of property ownership which can be substantial are transferred from the retiree or the estate of the retiree direct to the retirement village owner/shareholders.
The industry is well described by Tom Gait, a past president of the Retirement Village Resident Association.
“Families need to be aware that what we are talking about is the transfer of intergenerational wealth, not to families, but into the pockets of large multinationals. Shame about elderly people not having enough money for aged care.”
The reality of a loan/lease retirement village is, the retiree despite being merely an occupant has all the costs of property ownership but none of the benefits. The owner of the loan/lease retirement village has all the benefits of property ownership but none of the costs.
The chart below clearly demonstrates the dramatic destruction of retiree capital from selling the family home and entering a loan/lease retirement village.
A retiree (blue Line) who chooses to stay in the family home with all the rewards of property ownership.
A retiree (red line) who gains 0% of any capital gain in the value of the village unit they occupied.
A retiree (orange line) who gains 100% of any capital gain in the value of the village unit they occupied.
The chart above demonstrates that the retiree by surrendering property ownership and entering a loan/lease retirement village has a suffered a demonstrative reduction in their capital base -
Without capital gain (Table 1) a reduction -
Over 9 years (industry average period) some $1,140,580 in capital value ($1,612,590 - $472,000). Over 15 years some $2,101,211 in capital value ($2,573,211 - $472,000).
With capital gain (Table 2) a reduction -
Over 9 years (industry average period) some $773,590 in capital value ($1,612,590 - $838,990). Over 15 years some $1,342,092 in capital value ($2,573,211 - $1,231,119).
A capital reduction transferred directly from the retiree or the estate of the retiree to the retirement village owner/shareholders. Caused directly by the loan/lease retirement village business model, the combination of a deferred management fee and the payment of an entry amount for occupancy only never ownership. This entry payment often commensurate with or near to a ‘purchase’ price of a similar property generally.
The tables below also show that -
By entry to a loan/lease retirement village the retiree without access to capital gain (50% of the marketplace) suffered a capital reduction -
Over 9 years at the rate of some $2,437 for each week of occupancy.
Over 15 years at the rate of some $2,694 for each week of occupancy.
By entry to a loan/lease retirement village the retiree despite access to capital gain (50% of the marketplace) suffered a reduction in capital value at the rate of -
Over 9 years some $1,653 for each week of occupancy.
Over 15 years some $1,721 for each week of occupancy.
It can be seen that a retiree on moving from a loan/lease retirement village to an aged care facility has suffered a dramatic reduction in their capacity to pay their own aged care costs, thereby placing an increased burden on the Australian taxpayer for assistance to do so. Governments are mistakenly favourable to loan/lease retirement villages and should mandate that retirees obtain outright property ownership of the unit they are to occupy, alternately to mandate that retirees simply rent a unit under the relevant Tenancies Act.
This action would remove the convoluted contracts and the slight of hand in that retirees and their families are unable to identify the true cost of occupying but not owning a unit in a loan/lease retirement village. The tables and the chart demonstrate that the true cost of mere occupancy without ownership is demonstrative, well beyond simply residential property ownership or simple residential tenancy. Legislative reform would provide transparency and allow a direct comparison to ownership or simple rental, both well understood by retirees, their families and their professional advisors.
Retirees should be able to obtain outright property ownership and the benefits that flow from that ownership. This action would allow retirees or the families of retirees to retain more of the hard earned capital base and be better placed to fund any aged care costs. This action would strengthen the concept that the relevant legislative framework should do no harm which is not the case currently.
Note - The chart on page 1 is generated from the data in the following tables.
A retiree living in a retirement village pays maintenance fees, management fees, refurbishment costs and selling costs. These have been excluded from the calculations as they can be common with ownership of the family home.
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