A Current Affair gets it wrong

On the 4th of July 2014, A Current Affair ran a story about retirement villages.

Normally ACA is an advocate for the retirement village industry so it was interesting to see such a one-sided view on the sensationally titled story Exit Fees sucking older Australians dry.

I have pulled a couple of points out of the story and would like to add my view as follows:

Time taken to sell

This issue was also covered recently by the ABCs 7.30 Report. Essentially, the issue is that sometimes it can take a very long time to sell a retirement unit, which ties up cash and may continue to incur fees.

Retirement village units typically dont sell because the price is too high. It is not usually the fault of the operator they dont make any money until the unit is sold and this makes them very motivated to transact. In addition, in some states legislation the operator will be paying some or all of the ongoing fees on that unit, which can quickly inspire them to drive a quick sale.

Ongoing Fees

Yes, when you leave a retirement village and hand the unit back to the operator for selling, you will typically have to continue funding the ongoing fees.

Is this fair?

Well, just because you have moved out of your unit, it doesnt mean that the village can now shut down the pool, sack the staff, stop maintaining the village and close down the kitchen. Clearly, costs will still be incurred in keeping the village open so your unit can be on-sold to the next resident. This is no different to say a strata-titled unit, where you still pay body corporate fees whether you are living in the unit or not. Someone has to keep paying those costs you cant slap additional charges onto remaining residents for vacant units.

As mentioned previously, in some contracts the operator actually incurs the fee liability after a period of time. If this issue is important to you, then look for contracts that include this.

Exit Fees

Exit fees are essentially the price you pay for living in a community with facilities (such as swimming pools, clubhouse, gym, etc) and support. Rather than sting retirees on a limited income for higher monthly costs as they are living in the village, the charges are accrued and paid when you leave the unit. A direct comparison would be a freehold strata unit complex with the same level of facilities the monthly or quarterly cost would be much higher.

Are they fair?

Well, it depends. Exit fees that are at market average (30-35% of purchase price) and cover a range of village facilities are fair. Exit fees that are higher than market (35% plus of purchase price) are probably unfair. Even if the fee is above market average, if you are comfortable paying it, then thats fine.

Exit fees are applicable to probably 95% of the retirement villages in Australia. If you dont want to pay them, then best you look at alternative living options.

The Exit fee calculation should freeze once the unit is handed back to the scheme operator. You should not be paying exit fees for the period that the unit has been vacant.

Non-regulated

The claim is made several times on the ACA story that parts of the industry are unregulated. Nothing could be further from the truth all states and territories have retirement village legislation, or in the case of lifestyle parks, caravan park/mobile home legislation. The legislation was designed specifically for consumer protection and is usually administered by a states fair trading office. Ironically, the huge size and complexity of retirement village contracts is a consequence of this legislation.

Appoint your own agent

In some states, the legislation allows for the appointment of external real estate agents to sell the unit. I actually dont recommend this, as external agents typically do not understand the contractual arrangements and difficulty explaining these to the buyer. Your best option is to be the squeaky wheel get familiar with your state legislation and contract and know what the operators obligations are around the sale process. Keep them to it. Call constantly to find out what activity they have been doing to sell the unit. Check the website and sales collateral. Make sure they are using professional photos and not simply snaps from the agents iPhone. Ask for buyer feedback. Look at properties for sale in both your village and the villages competitors to see how your property compares. Get a friend to act as a buyer to find out what they are saying about the property. drop in for regular inspections to make sure that the unit is being maintained and cleaned on a regular basis. Look at the sales brochures and website.

In other words, get active and drive the operator to sell. Dont just sit back and expect it to happen.

Selling a dream

Retirement village operators are selling a dream and for many residents, they are very happy with their decision to move into the village. In fact, the 2013 McCrindle Baynes Villages Census Report which surveyed over 10,000 residents of villages across Australia found that the retirement village sector is Australias highest rated industry as voted by its clients!

In summary, I cannot emphasise enough do your research and get good advice. And remember, your only time to dictate the terms of your relationship with the village operator is BEFORE you sign the contract. Another tip is to keep your family informed as to the kind of contract you are signing. This will ensure there are no surprises in the event that they inherit your estate and have to work out the complexities of the contract you have signed.