With a joint ABC and Fairfax Media investigation into one of our biggest retirement village operators making headlines this week, we’ve had many queries from people regarding some of the ‘facts’ presented in the story.
The investigation by the Four Corners program and Fairfax journalist Adele Ferguson highlighted a small number of cases of Aveo village residents in Melbourne – and some of the allegations were worrying, deserving discussion.
But the report also failed to point out many of the facts about how retirement villages work.
It claimed Aveo inflates its exit fees by “churning” through residents. In fact, Aveo residents have an average occupancy of 10 years – higher than the industry standard of nine years for private villages and eight years for not-for-profit villages.
This was backed by Ms Ferguson’s argument that Aveo makes an average exit fee of $75,000 per resident, which gave it a $90 million profit last year.
Retirement villages are not ‘free’ accommodation
Nothing was mentioned about what this exit fee covers – your accommodation for the 10 years you are in the village.
Say you live in a village for 10 years – based on Aveo’s average of $75,000, you would be paying just $144 a week in ‘rent’ most likely for a two-bedroom home in a well-maintained community in a good suburb. It’s a great deal.
Aveo did make $90 million last year, but this followed a $2 billion investment in their villages – that’s only a 4.5 per cent per annum return.
The reality is when you ‘buy’ into a retirement village, you are in fact ‘leasing’ the home from the operator, with the ‘entry fee’ acting as a bond.
For this, you get to live in a maintenance-free home with access to community facilities and services that would be otherwise unavailable to you.
When you leave, the operator gets its ‘rent’ by returning the bond minus the exit fee.
Residents and operators both have their obligations under this agreement – and you can seek legal advice before signing.
If you join a village, you are also supported by the Retirement Villages Act which exists in every state and is designed to ensure they have their rights respected.
Residents and families need support and advice
In the Four Corners story, many of the residents had not read their service agreements before they signed.
Certainly the residents in the report need to be treated with dignity and discussion. But research (pictured above) has also shown 91 per cent of Aveo’s residents would move into a retirement village again – the same figure as the rest of the industry.
For residents who had moved into a village in the last two years, the figure was even higher – 98 per cent.
Two lessons are clear – operators need to respond to any concerns from residents quickly and effectively. But more of us need to read the fine print and seek advice when we are making these big decisions – then we can all enjoy a good retirement.
Discussion2 Comments
Let me say that the ABC/Fairfax expose was over the top but none the less it exposed practices that are far from rare. In typical journalistic fashion it sought to summon up righteous indignation from the viewer at the plight of those interviewed without giving equal weight to the fact that most of them had failed to get the right advice on their leases. But getting good advice is far more difficult that you think.
Eleven years ago I took my lease to my solicitor. He had guided me through mortgages on my first home, its eventual sale for my first ‘downsize’ followed by the purchase of my smaller second home which I then realised, after my first knee replacement aged 73, was no longer suitable for me to end my days.
I had already investigated a number of Northern Beaches retirement villages including the one in which my parents had lived for many years. I had used a spread sheet to calculate a ‘ten year outcome’ for the six villages that we suitable. My solicitor considered that I had a firm grasp of the ‘financials’ and he could see nothing wrong with the lease – in those days it was only 50 pages long. He did draw attention to the Deferred Management Fee. I had never heard at that stage of ‘elder law’ or knew there were solicitors who specialised in that emerging field.
Now it is not unusual for a village contract (the lease) to run to over 100 pages of which more than half are additional terms that are not required by law and are negotiable before you sign. Did I say confusing?
In summary, I went into my village with eyes wide open. I reckoned that after 10 years with a DMF calculated at 2.5% pa for a maximum of 25% I would get my money back. My unit faced north-east with a bushland view, we had the biggest bedroom we had ever had and two bathrooms and an extra toilet. We were in paradise.
11 years later with 8 years on the residents committee I am now much wiser. I did not know that I would have to pay to paint the buildings that we do not own or to repair the roadways through the village or to clear the storm water drains blocked after years of neglect. I did not think that our operator would charge us 6% pa for our workcover premium when the NSW government had set the rate at 4%. for a period of 4 years. Yes, we did get our money back but why did we have to discover the overcharge and then PROVE to the operator that what they were doing was wrong! And don’t get me going on the obscure justification for the ‘management fee’ which is impossible to verify. “Believe me, it is costing us much more than we are charging you.” A used car salesman is a rank amateur.
But we the residents now have the chance to remedy the imbalance between operator and resident. We have less than a month to propose changes to the Retirement Village Regulation 2017 but even here here the playing field is not level. The first line of the Explanation says:
“The object of this Regulation is to remake, with minor changes the provisions of the Retirement Villages
Regulation 2009”
“Minor changes” is a very limiting objective. We should be looking to the philosophy stated in the Regulatory Impact Statement to the 2009 Regulation:
“The funding split in the Act is based on the premise that the operator owns the capital
items in the village and the residents use them.
“work…….which would need to be
done regardless of whether any residents lived in the village, should be paid for by the
operator…….such as external painting.”
I do hope that residents use this opportunity for change by lodging their suggestions with the Office of Fair Trading.
As Professor Fels said, Aveo, has uncorked the tip of a volcano.
My husband and I moved into a new apartment in our village in 2006 at ages 62 and 63. We paid $479,500 and then funded about $50,000 improvements. Since then we have paid our monthly fees to a total $72,634. If we were to leave now, because of the contract we signed, we would get approximately $130,000 (if we were lucky).
Just a quick calculation: – $479,500 + $50,000 +$72,634 – $130,000 is $472,134. This is the cost of living in the village for over 11 years, which represents a monthly amount of around $3,500.
Our monthly fees are increasing above the CPI, and the money we will get back decreases as time goes by due to the exorbitant “reinstatement” fees. Now in our early 70’s we cannot afford to leave, and we will find it steadily more difficult to stay as we are responsible for maintaining, repairing and replacing ageing electrical appliances, fixtures and fittings, plumbing, painting, flooring etc.
I quote from the above article:-
“For this, you get to live in a maintenance-free home with access to community facilities and services that would be otherwise unavailable to you.”
The above quote is totally incorrect. Under our lease, we are responsible for all repairs, maintenance and replacement of items in my home, plus responsible for all costs associated with the outside of my home through my contribution to an MRF. This is not “maintenance free!
The figure quoted of $75,000 as an average exit fee is way out for anyone leaving my village -our estimated exit fee right now is $314,000 (and this is would be approximately the same for everyone). There are about 150 homes in our village. You can do the Math!
We know that we made a “lifestyle” decision, rather than a financial one, but even so the “gouging” claim does resonate. We, along with the majority of longer time residents, had believed our Scheme Operator held more responsibility for our buildings, but now we are being told that they do not belong to him (?) and so we have to repair, maintain and replace anything that goes wrong. Even a water damaged front door!