Resale gains on units are a “significant chunk” of retirement village profits, financial analysts say, as debate heats up on whether residents should share in those.
The Retirement Village Residents Association is calling on retirement village owners to share some of these resale gains with residents or their estates when residents pass away or move into care.
Residents of retirement villages have made hundreds of submissions to the Retirement Commission backing its recommendation of a major revamp of retirement village legislation where one of the issues for debate is whether residents should share some of the resale gains.
Residents pay a cash lump sum to buy a licence to occupy a unit via an occupation rights agreement (ORA) and when they leave or pass away they or their estates get between 70 per cent to 80 per cent of that money back because village owners take 20 per cent to30 per cent in “deferred management fees” for costs in maintaining the unit.
Then the occupation right is resold to a new resident, usually at a higher price, and the village operator makes a gain on the resale.
Personally I think this is a smart business model. By making most of their money from the one-off licence fee, the retirement villages then keep the weekly fee low enough to be below the pension. This means that people can move in, and never worry about not being able to afford to stay on. Sure when they died they don’t get to enjoy a capital gain from the apartment they lived in, but as they are dead that is probably less of a concern to them than having their weekly outgoings kept low.
But if someone wants to set up a retirement village where there is a higher weekly fee, but residents’ estates share in the capital gain of the apartment, you can do so. Then see how many people prefer this model. I doubt few will, but there is no barrier to someone trying.
What shouldn’t happen is have a law passed dictating the model used. These are voluntary transactions.