…the gain is in eliminating the uncertainty in how much you will receive and when.
Major national retirement village and aged care operator, Aveo, has launched a new retirement village contract which it says is a much simplified financial model that will eliminate uncertainty and perceived risk in joining a retirement village.
The result of 18 months of research, the new contract they are calling ‘The Aveo Way’, will be available only to new residents joining a village.
Aveo believes it could be a role model for the village sector and possibly a guide for future legislation.
Their objective is to reduce both the perceived risk when joining a village and the unexpected costs when you leave.
Under The Aveo Way, you have a 21 day cooling off period when you sign the contract and a further 90 days settling in period at basically no penalty if you decide to leave the village. When you depart at the end of your contract, Aveo says, you can basically hand back the keys and they will look after everything after that.
The way that Aveo has been able to achieve this is by taking away the resident’s share of the capital gain when the property is sold. But at the same time, they have eliminated a number of the selling costs.
Pros and cons
According to Aveo, walking away from sharing the capital gains works for both Aveo and the residents. They say the impact on residents in financial terms is about the same. For example, the cost of a full refurbishment of the unit is approximately $50,000. The 50 per cent capital gain on the $350,000 unit over 10 years is likely to be around $50,000 as well.
But Aveo takes on both the sale costs and the sale ‘risk’. The gain for the resident is in eliminating the uncertainty in how much you will receive and when.
The other big change is that they have kept the DMF at 35 per cent but accelerated it – to 35 per cent over three years. The accelerated DMF over three years is a path well travelled by a number of not-for-profit village operators already, many of which have a five year DMF. At the same time, however, Aveo’s year one has a lower DMF rate (7 per cent) in case you want to leave early.
Another element of The Aveo Way is a membership program designed to provide club-like benefits that will expand to Aveo’s 12,000 residents, with member services like travel discounts and contents insurance benefits.
While Aveo owns or manages a total of 75 villages, The Aveo Way program is being offered across 54 villages. The average tenancy across all their villages, including serviced apartments, is 8.6 years.
This is certainly a different and interesting approach to simplifying contracts and arrangements. But is The Aveo Way a good way to go? What do you think?
‘The Aveo Way’ at a glance:
- A three year DMF, with year one at 7 per cent, year two at 14 per cent, and year three 35 per cent
- No capital gain or loss
- No sales commission fees or marketing costs
- No refurbishment costs
- Guaranteed sale in six months (NSW & TAS) or 12 months (QLD, VIC, SA)
- Aveo ‘membership’ fee: $1,500pa + 2.5 per cent increase per annum paid on departure
- Monthly fees subsidy: $500 per annum paid by Aveo to assist with fees
- 21 day cooling off period without penalties or administration fees
- 90 day settling in period: legal fees and monthly village fees only
- The Aveo membership is designed to provide club like benefits that will expand to Aveo’s 12,000 residents, with member services like travel discounts and content insurance benefits.
Discussion4 Comments
The “Aveo way”, if adopted more widely, will go a long way to shore up the finances of the sector. Consumers may see it differently.
While the value of the manager’s interests will still be vulnerable to extended stays, the larger and earlier DMF and the absence of any capital gains will be a significant buffer against this.
Assuming a couple comprising a female aged 70 and a male aged 74, experiences Australian Life Table mortality and age and sex specific transfer to care rates as published by the Australian Institute of Health and Welfare, one would expect occupancy periods of her 15.7 years, him 11.2 years and the last survivor 17.9 years. Double the mortality and transfer rates, you still get occupancy periods of 11.4, 7.4 and 12.8 years respectively – a lot more than Aveo’s quoted average tenancy of 8.6 years (admittedly including serviced apartments).
One hopes that Aveo, in calculating its average tenancy, has allowed for the people who are still resident.
After five years experience with AVEO, one would want to read the fine print very carefully.
Reinstatement costs of $50,000 would relate not just to restoring to marketable condition but completely re-modelling the property. Some operators are getting away with this now, upgrading the property at the owner’s expense and reaping the exit percentage on the improved value not having contributed one cent to the improvements themselves.
The reinstatement specifications required by operators are outrageous. If you were selling a house, you would not do a fraction of the work required by operators. Replacing carpets, curtains, even removing curtain rails are in many cases wasteful and uneccessary.
These new ideas are well and good for new residents, as an Aveo resident for a decade, non of it will apply to myself or my neighbours, the new PDF only applies to them, if I wish to read one of these I have to pay $60 for the privelege!!
Also $50,000 to refurbish is just rubbish, units around my own, have had just painting and carpeting changed, and they are back on the market. Sometimes the resident is only there for six months or so in some cases, and the same thing over again. With the families paying goodness knows what to re-instate it.
Of course older units require more done to them, kitchen and bathroom wise, however why should the resident have to pay for that.
We move into a village, for a secure peaceful lifestyle!!!
My Mother was in Aveo for five years, before having to be moved to a Nursing Home, as Aveo could not offer the care she required.
On exit we immediately lost 33% of my mother’s $200,000 investment as an Exit Fee. Just to rub salt in the wound the Unit resale value was shown at $450,000, but of course we were excluded from benefiting from this. I offered to sell the unit on her behalf but was promptly advised that only Aveo could do this . They then charged my Mother $1300.00 for the privilege.
My Mother has since passed on and I have just received another invoice from Aveo for $1800.00 as a monthly charge. This charge includes Catering, Personal Services and Maintenance etc. I am sure landlords would love this deal. Imagine having a tenant who has left, pay rent until the place was occupied again. But we don’t do this to tenants, so why is it acceptable to do it to elderly people who have died or moved to better care facilities.
The fact of the matter is the Aveo Contract is unreasonable and constitutes legal theft. It is designed to is strip the elderly and ill-informed them of their money, security and dignity. During your stay, you will also be charged a monthly fee of $1,200 to $1,800.00 excluding phone and Power.
Shortly before my Mother left they introduced another service through a new partner company. This offered closer personal care for an additional $200.00 a week. This boosts the monthly fees to between $2,000.00 – $2,600.00 a month. Even with this, they could not cater for my Mothers needs.
I then had to find a Nursing Home that would take my Mother, minus $75,000.00 and still having to pay Aveo a monthly fee.
I would not mind as much, if Aveo provided superior service and care. Unfortunately, my Mother experienced medical incompetence, inedible food, indifference from some staff and isolation. Little or no effort was made to engage with her, other than the monthly invoice. Recently my Mother had been in Hospital for over 6 weeks and the only communication Aveo made was over the unpaid invoice for the period she had been in Hospital.
Age care should not be a profit at all cost business, or a Political football. It is a direct reflection on how societies treat their elders and one day that will be you. Commercial Businesses in this industry need to take stock of their moral and social responsibilities. To argue ‘oh but we have to look after the shareholders’ is a lame excuse. If they are that concerned why not get their Shareholders to live in one of their apartments or units. But I am sure their Lawyer would advise against signing an Aveo Contract…So would I.