Retirement Housing Reforms Demanded

Retirement Housing Reforms Demanded

We’ve had the inquiry, now we need retirement housing reform!

Thursday, 30 November 9.30 am-11.30 am parliament house Spring st Victoria.

Retirees gathered for morning tea at the Victorian Parliament House to hear from their MP and plans for retirement housing reforms.

Consumer Action Law Centre, COTA Victoria , RRVV Victoria and Housing f o r the Ag e d Action Group also launched their joint Retirement Housing Election Platform looking toward the 2018 Victorian election.

Some key points from the meeting:-

• “Dispute resolution a significant concern” acknowledges the Minister for Consumer Affairs Marlene Kairouz, commits to reform the sector working with residents.


• Shadow Minister for Consumer Affairs Heidi Victoria MP pledges to reduce bureaucracy, look at options for dispute resolution inc. Ombudsman


• Ellen Sandell, Greens spokesperson for Consumer Affairs announces support for RVA review & retirement Ombudsman within 12 months

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Retirement Village Sector Has Lost Trust

Retirement Village Sector Has Lost Trust - A key message from the National Retirement Living Summit indicates the retirement village sector has lost trust within the marketplace.

Long-term Executive Director of NZ’s Retirement Village Association, John Collyns, emphasized to the summit the importance of 'social licence', which he defined as:

“The ability of an organisation (or industry) to carry on its business because of the confidence society has that it will behave in a legitimate, accountable and socially and environmentally acceptable way”.

“It does not just derive from a need for legal or regulatory compliance but takes into account the inputs from a wider group of stakeholders and a sense of transparency and accountability in its external reporting”.

“It is the foundation for acquiring operational certainty, realising future opportunities and lowering risk for the business.”

There has been plenty of evidence to inquiries carried out by both federal and state legislators that the Australian industry has failed retirees as to aspects of this 'social licence'.




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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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Statutory Duty of Candour

"The Victorian Minister for Health has committed to consult on the introduction of the statutory duty of candour and has asked that this consultation be led by an Expert Working Group appointed to provide advice on legislative reforms arising from Targeting Zero.

• A consultation paper has been released seeking the stakeholder views on aspects of a statutory duty of candour to be introduced in Victoria.


• A statutory duty of candour is a recommendation of a review led by Dr Stephen Duckett into quality and safety across the Victorian health system.


• A statutory duty of candour is a legal obligation to ensure that consumers of healthcare and their families are apologised to, and communicated with, openly and honestly when things have gone wrong in their care.

A statutory duty of candour is a legal obligation to ensure that consumers of healthcare and their families are apologised to, and communicated with, openly and honestly when things have gone wrong in their care."

Full story here :- https://www2.health.vic.gov.au/hospitals-and-health-services/quality-safety-service/better-safer-care/statutory-duty-of-candour




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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.

Hundreds for Aveo Class Action

Hundreds for Aveo Class Action - Melbourne Age reports,

"Hundreds of former Aveo residents have signed up for two separate class actions against the retirement village giant following a media investigation that uncovered a series of questionable business practices at the company.

Lawyers for Levitt Robinson are charging ahead with a class action they estimate at $30 million after securing a litigation funder and lodging formal paperwork in the Federal Court last month."

Full story available here:- http://www.theage.com.au/business/banking-and-finance/hundreds-sign-up-for-aveo-class-action-20171124-gzscfz.html

Hundreds for Aveo Class Action



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