Retirement Villages What is Wrong

 What is wrong with Victorian loan/lease retirement villages? 

1. Property Ownership is never granted.
2. You paid for it but you don't get to own it. 
3. You only 'rent' it. 
4. This through deceptive names like 'entry payment' and 'deferred management fee' that obscure the true $ cost.
5. You pay for management of the property even though you don't own it.
6. You pay for upkeep of the property even though you don't own it.
7. At the end of your occupancy you can even pay to renovate the property you never owned.

Deferred Management Fee Nonsense

The Jacinta Allan Government new definition of the 'Deferred Management Fee' as a fee for 'services' has ZERO functionality. 

This change is from the new proposed Victorian Retirement Villages Act.

ZERO functionality comes from the fact that village residents already pay 100% of the cost of 100% of the management services that Victorian retirement village operators claim and charge for as necessary to successfully operate the village.

Under Australian consumer law an operator cannot charge for ‘services’ where 1. there is no intent to supply or 2. no supply has in fact been made.

Competition & Consumer Act 2010
Chapter 3. 3-1 Unfair practices. Division 1. 36 - Wrongly Accepting Payment.

36-1 A person must not, in trade or commerce, accept payment or other consideration for goods or services if, at the time of the acceptance, the person intends not to supply the goods or services.

36-4 A person who, in trade or commerce, accepts payment or other consideration for goods or services must supply all the goods or services:

WHAT ARE THE NEW FEES?

HOW CAN THEY BE SUBSTANTIATED?

Retirement Villages Destroy Retiree Capital

The @jacintaallanmp Labor government fails to recognise destructive nature of retirement villages, sending retirees on a journey that destroys their capital base. @WendyLovellmp @georgievpurcell @JaclynSymes @HAAGHomeAtLast @Chris_Gillett_ @adele_ferguson @ABCGoulburnMurray pic.twitter.com/oEJvIphmZp

— Les Scobie (@retvilldotnet) December 16, 2024

Retirement Village Deception

The great retirement village deception, the use of words like 'buy' and 'purchase' deceive the retiree
into believing an exchange of ownership will take place. In fact the retiree has merely made a 'loan' to the operator at 0% interest. This loan on far too many occasions is equivalent to or near to equivalent to the purchase value of a similar standard unit with the generally community.

The loan has three key features all detrimental to the retiree,

1. Village residents can lose as much as 40% of the original 0% loan amount through a poorly named 'Deferred Management Fee', this fee is accumulated over the initial years of occupancy.
2. Inflation over the period of occupancy can devastate the $ value of the refundable amount of the original loan. (The refundable amount being the value of the initial loan minus the value of the deferred management fee.)
3. Outgoing residents can wait weeks, months to get back the refundable portion of their loan after their departure from the village.

Loan/Lease Retirement Village - Resident Funded – 74% of the marketplace

• Development of the village funded by the retirees with 0% loans to developer/owner.


• Retiree loans a $ sum, in the order of a 'buy' price, at 0% interest to the developer/owner in exchange for conditional occupancy, not ownership.


• Village residents despite only occupancy not ownership, pay all the management costs, maintenance costs, municipal rates, renovation costs, selling costs.


• Village residents despite only occupancy not ownership, can lose as much as 40% of the original 0% loan amount through a poorly named 'Deferred Management Fee', this fee is accumulated over the initial years of occupancy.


• The shorter the occupancy period the more devastating the Deferred Management Fee becomes on the $ amount of the refundable portion of the 0% loan.


• The longer the occupancy the more devastating inflation becomes on the $ value of the refundable portion of the 0% loan.


• In the order of 50% of developers/owners deny retirees access to any unit capital gain.


• Enforced by legislation retirees can wait weeks, months to get back the refundable portion of their loan after their departure from the village.

Two Retirement Village Operators Offer Alternative Contracts

YourLifeChoices reports that two retirement village operators offer alternative contracts.

"During last year’s joint Fairfax/Four Corners reporting of alleged unconscionable conduct by Aveo, revelations surfaced about residents who said they had been ‘gouged’ by exit fees – otherwise known as deferred management fees – when they left the villages.

In response to the fallout, Stockland and Lendlease, which between them own 136 retirement villages, have introduced a variety of new contracts, some of them without exit fees.

According to a report in The Sydney Morning Herald, Lendlease has introduced “four financial models at 15 of its 71 retirement villages, with plans to extend them across the board after market feedback. Lendlease would still offer its existing contract, whereby a person buys a unit then pays a deferred management fee at the end. The three new options include a pre-paid plan, a refundable contribution and a pay-as-you-go model”

Stockland Chief Executive of Retirement Living Stephen Bull told YourLifeChoices in a statement: “One of the key differentiators of our retirement living business is that we make it affordable to move in, and affordable to live in a Stockland retirement village."

The company has three types of contracts:

• the Peace of Mind contract has a deferred management fee that maxes out at five years or 25 per cent of the initial price paid from the home. In addition, Stockland covers all renovation costs and residents will be repaid after a maximum of six months from departure even if their home hasn't yet been sold.


• the Capital Share contract offers the resident the opportunity to share in 50 per cent of the capital gain of the property. In this contract, the residents deferred management fee reaches its maximum at seven years or 35 per cent in total.


• the Aspire product, which will be offered at two villages currently under construction – one at Elara, in Marsden Park, Sydney and the other one is in our Calleya Community near Perth in WA. It has a higher entry fee, but no exit fees."

Read the full story here:- Two companies offer village contracts free of fees

Two Retirement Village Operators Offer Alternative Contracts

Please sign the petition for retirement village reforms.

Legislators Should Outlaw DMF Model

Legislators Should Outlaw DMF Model - Australian legislators should outlaw the retirement village deferred management fee business model.

This business model for retirement villages has a devastating effect on the capital value of the residents over the period of occupancy.  In the shorter term because of the deferred management fee heavily loaded to the early years of occupancy, in the longer term because of the combined impact of -

• the deferred management fee


• maintenance fees


• refurbishment costs


• exit costs


• devaluing effect of inflation on the balance of the in-going amount to be refunded on exit

The following table shows the differing impacts for both the resident and the village operator.



Both parties commence with a capital base of $850,000.00, the in-going amount required to obtain a lease (not ownership) of residential accommodation within the village.

The resident loses $607,227.09 in capital value over just 7 years whilst the operator gains a whopping $1,140,697.09 over the same period. This is for just one unit within the village, the combined numbers across a village of 150 units is alarming and should be outlawed by governments.

Legislators Should Outlaw DMF Model.



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Pensioner Poverty in a Retirement Village

Pensioner Poverty in a Retirement Village – The business models sanctioned and encouraged by Australian governments contribute to what is referred to in the industry as a poverty or financial trap.

Australia already ranks poorly in relation to pensioner poverty and sadly the business models used by the retirement village industry make a contribution toward these damning statistics.

[caption id="attachment_2420" align="aligncenter" width="957"] Pensioner Poverty[/caption]

The deferred management fee structure inherent in most models,, inflation, rising property prices, rising nursing home entry costs, village maintenance costs, village administration costs, village exit costs will over time reduce the capital value of the refundable amount due to a resident on exit from a retirement village.

This impact of the deferred fee, loss of earnings, inflation etc. on the amount to be refunded  is something many pensioners / retirees will have to deal with.  A change in circumstances without further financial resources often leaves a person in a financial position they did not envisage on entry.

Additional capital resources may be needed to meet the cost of any change in circumstances – ie: choose or need to leave the retirement village, re-enter the property market, meet the cost of a nursing home bond to enable entry into a nursing home of choice.

Many retirement village residents enter a financial trap they did not see on entry as a result of the ever decreasing value of the amount to be refunded on exit from the village.

The following table shows four different retirement village business models and the reduction in capital value suffered by pensioners / retirees once they entered a retirement village. The complexity of the business models and contracts of occupancy hide this path to 'poverty' for many older Australians.

Green - Deferred Management Fee calculated on the entry value - 100% of any capital gain to the resident
(45% of the market)                                                                                                                                                                                      
Blue - Deferred Management Fee calculated on the exit value - 100% of any capital gain to the resident.
(14% of the market) 
Pink - Deferred Management Fee calculated on the entry value - 0% of any capital gain to the resident.
(20% of the market)
Orange - Deferred Management Fee calculated on the exit value - 0% of any capital gain to the resident.
(21% of the market)



Pensioner Poverty in a Retirement Village.

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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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Renting cheaper than Retirement Village

Calculations show that Australian retirees could be hundreds of thousand of dollars better off if they were to simply rent a property of choice rather than enter a Retirement Village.

New Long Term Leasing Laws in Victoria will enable retirees to gain security of tenure not available before now. Retirement Villages have been able to offer a security of tenure for retirees not generally available within the general housing market. For this Retirement Villages charge handsomely and whilst providing a few treats such as a communal hall, pool, bowling green etc. village residents pay for these facilities in what can be a complex payment structure whether they use them or not.

These long-term leases will give retirees an opportunity to retain their capital wealth making it easier to enter an Aged Care facility of 1st choice when that time comes or leave a nest egg for family members.

The retiree can face a major social and financial decision both for themselves and their families:-

1. Enter a Retirement Village with an in-going payment of $850,000.00 for just a conditional lease, not ownership.  The operator charges monthly maintenance fees on a unit the retiree does not own, a refurbishment cost at departure on a unit the retiree does not own, a deferred management fee charge of 35% of the in-going payment. On departure the difference ($552,500.00) between the in-going payment of $850,000.00 and the deferred management fee of $297,500.00 is refund to the retiree by the operator. All this whilst the retiree suffers a loss of earnings on their original $850,000.00 for the duration of their village occupancy.


2. Enter a  long-term tenancy arrangement for any commensurate unit within the general community. There will be a market rental cost to be paid to the landlord but none of the other costs generally associated with retirement villages. The retiree retains their original capital amount of $850,000.00 and can earn investment income to offset the rental costs.

As in any major financial decision professional advice should be sought including taxation and pension implications.

The table below examines the differing impacts of a retirement village versus rental on the capital wealth of a retiree over just 7 years of occupancy.

• Retirement Village - A capital value reduction of -$621,912.44


• Rental - A capital value reduction of -$ 77,494.00

The chart below indicates the cost of living in a retirement village is the order of double the cost of simply renting a commensurate property within the general community.  On a property to the value of $850,000.00 a likely rental cost would be $950.00 per week over 7 years wheres a retirement village cost is in the order of $1,805.00 per week.  The serious question for retirees is are any intangible benefits of a retirement village such as communal facilities, communal activities worth the cost of $855.00 per week. Security of tenure is a feature offered by retirement villages that cannot be matched in the general rental market at the moment, the Victorian government is enacting long term leasing laws.

Property Rental or Retirement Village

Property Rental or Retirement Village - Australian retirees can suffer a dramatic reduction in their capital base depending on whether they choose to rent a property and retain the capital amount from the sale of the family home or purchase a lease for accommodation within a retirement village.

In this example a retiree has access to $850,00.00 in capital and can face the following options.

1. Purchase a lease/licence enabling the retiree to occupy a unit in a Retirement Village. The Deferred Management Fee is 35% of the entry cost of $850,000.00 plus annual maintenance fees and a unit refurbishment cost on departure. The retiree obtains 0% of any capital gain in the value of the unit.


2. Purchase a lease/licence enabling the retiree to occupy a unit in a Retirement Village. The Deferred Management Fee is 35% of the entry cost of $850,000.00 plus annual maintenance fees and a unit refurbishment cost on departure. The retiree obtains 100% of any capital gain in the value of the unit.


3. The retiree could rent a communsurate property within the general community and pay a weekly rental amount.


4.  Stay in the family home.

The graph and the tables below illustrate the dramatic reduction in capital wealth of the retiree over just a 7 year occupancy period within a retirement village.  Financial outcomes can depend on the contractural provisions offered by the village operator.  Renting a property within the general community can have a much less dramatic impact on capital wealth but as in all financial decisions there are multiple issues to consider.

Scenarios are illustrated using standard retirement industry parameters:-

Option 1.

• Deferred Management Fee of 35% on the in-going value of village unit.


• 0% of the capital gain to the village resident.


• Maintenance fees


• Unit refurbishment cost.

Results Option 1 -

Village Resident   Start - $850,000.00  Finish - $228,087.00

A capital reduction of minus $621,913.00

 

Option 2.

• Deferred Management fee of 35% on the out-going value of village unit.


• 100% of any capital gain to the village resident.


• Maintenance fees.


• Unit refurbishment cost.

Results Option 2 -

Village Resident   Start - $850,000.00  Finish - $493,373.00

A capital reduction of minus $356,627.00

Note:- This improved result over Option 1 is totally dependent on the size of any capital gain. Should there be 50% less capital gain ($204,066.00) the result would be a capital reduction of minus $560,693.00.

 

Option 3 -

• Rental property value $850,000.00


• Rental return to Landlord initially 5% then a 5% annual increase in rent


• Retiree retains $850,000.00, the proceeds from the sale of the family home


• Retiree invests the retained capital, calculation uses 4% return on investment compounded

Results Option 3 -

Renter   Start - $850,000.00  Finish - $772,506.00

A capital reduction of minus $ 77,494.00

 

Graph 1

Table - Option 1

Table - Option 2

Table - Option 3

 



 

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Loss of Capital in Retirement Villages

The Melbourne Age reports in an article regarding a class action against prominent retirement village operator Aveo:-

"Professor Murray Gillin is one of 200 retirees who have signed up for the Levitt Robinson claim.

Professor Gillin, who lectured in entrepreneurship and innovation at Swinburne University, told Fairfax Media his decision to sell his townhouse and move into a retirement village at Sackville Grange in Melbourne's blue ribbon suburb of Kew, ultimately cost him hundreds of thousands of dollars in exit fees, foregone capital gains and other fees including maintenance fees.

He bought the freehold property in March 2010 for $850,000 and walked away after six years with $669,076, after the various fees were deducted."

This experience is highlighted in the chart below showing 4 different paths a retiree can take 1. Retain or obtain ownership of residential accommodation, 2. Rent residential accommodation, 3. Lease/licence residential accommodation in a retirement village with 100% capital gain but with the deferred management fee calculated on the exit price, 4.  Lease/licence residential accommodation in a retirement village with 0% capital gain but with the deferred management fee calculated on the entry price.

The Real Cost of Village Living

The Real Cost of Retirement Village Living

A recent report into Retirement Village living drew the following conclusion:-

Conclusion
"Seniors make the choice to live in retirement villages based on a range of personal and financial factors.
The amenity and social aspects of retirement village living provide much of the benefit of this choice.
Commensurate medium density apartment buildings provide accommodation but they do not provide the
benefits found in retirement villages."

http://www.retirementliving.org.au/wp-content/uploads/2013/12/COMBINED-REPORT-6-Oct-2017.pdf

The following table examines what is a measured cost of this part of the statement -

"The amenity and social aspects of retirement village living provide much of the benefit of this choice."

The table examines a retirement village where the in-going cost is $850,000.00, a Deferred Management Fee of 35% of this amount, 0% of any Capital Gain going to the resident, maintenance fees, a refurbishment cost, loss of earnings on the refundable amount of $552,500.00 ($850,000.00 minus $850,000.00 x 35%). The refundable amount is held by the operator until the resident leaves the village.

The tangible value of the residential accommodation was calculated at a return of 4% to a landlord. (see included table on rental returns)

A tangible rental value of $653.80 per week.

The cost of the intangible value  "The amenity and social aspects of retirement village living" a whopping $1014.40 per week.

A total capital value cost to a resident of $1668.20 per week over 7 years.

Retirees could simply rent a commensurate property within the general community for $653.80 per week and retain their capital amount of $850,000.00.

The Real Cost of Retirement Village Living.

 

Uniform Retirement Village Laws

Uniform Retirement Village Laws -

Herald Sun reports :-

Federal Government tells states to create uniform retirement village laws to protect seniors

"STATES have been put on notice to change their laws to better protect their retirement village residents and their families or face federal intervention.

Federal Consumer Affairs Minister Michael McCormack has given state counterparts until the first half of next year to create plans to overhaul legislation covering villages, with evidence lax and un-enforced laws were being manipulated by unscrupulous owners and operators."

Take this link to see the full comprehensive story:- Federal Government tells states to create uniform laws to protect seniors


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New Qld RV Laws

New Qld RV Laws - ABC News Reports:-

New laws to stop retirement villages exploiting elderly residents passed in Queensland

"New legislation passed in State Parliament will stop retirement village operators from gouging elderly Queenslanders, Housing Minister Mick de Brenni says.

An investigation by the ABC's Four Corners program earlier this year found residents in retirement villages were being left vulnerable to exploitation by loopholes in legislation and underfunded consumer affairs bodies.

Mr de Brenni said the new legislation would enforce simplified contracts and would require ongoing fees and charges to be clearly declared upfront."

See full story here:- New laws to stop retirement villages exploiting elderly residents passed in Queensland

New Qld RV Laws

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Retiree Capital Wealth Smashed by Deferred Fee

The capital wealth of Australian retirees is being smashed by the deferred management fee business model used by a large part of the retirement village industry.



Both the retiree and the village operator bring identical capital wealth to the transaction, the retiree $850,00.00 in capital and the village operator a unit with an asking price of $850,00.00 for the right to occupy it but not own it.

The graph and the table below illustrate the dramatic reduction in capital wealth of the retiree over just a 7 year occupancy period within the retirement village.  Also illustrated is the even more dramatic increase in capital wealth gained by the village operator using the deferred management fee business model.

Two scenarios are illustrated using standard retirement industry parameters:-

Scenario 1.

• Deferred Management Fee of 35% on the in-going value of village unit.


• 100% of the capital gain to the village operator.


• Maintenance fees


• Unit refurbishment cost.

Results Scenario 1 -

Village Operator  Start - $850,000.00  Finish - $1,990,697.00

Village Resident   Start - $850,000.00  Finish - $242.773.00

 

Scenario 2.

• Deferred Management fee of 35% on the out-going value of village unit.


• 100% of the capital gain to the village resident.


• Maintenance fees.


• Unit refurbishment cost.

Results Scenario 2 -

Village Operator  Start - $850,000.00  Finish - $1,725,362.00

Village Resident   Start - $850,000.00  Finish - $508,107.00

 

Graph 1

 

Table 1

 

 

Capital Value Lost Percentage

Capital Value Lost Percentage - The table below show the loss of capital value suffered by a retirement village resident expressed as a percentage of the in-going amount paid.

Also shown is a comparison calculated at an identical growth rate in property value for those who may remain in the family home.

Governments through incentives and legislation encourage older Australians to make the move from the traditional family home into retirement accommodation such as a retirement village. Although there are aspects of life in a retirement village that are beneficial to the retiree, the reduction in capital value is clearly excessive and does not represent fair and reasonable value for those intangible benefits as claimed by the industry.





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