15th Nov 2017
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Cutting through the quagmire of retirement village fees
Author: Olga Galacho
True cost of village life exposed

This year some state governments have legislated to force retirement village operators to simplify the complex contracts they have traditionally expected prospective residents to sign.

The hue and cry raised by a joint Fairfax and Four Corners team investigation this year into the impenetrable documents revealed that most pensioners were unaware of what they were signing up for.

Referring in particular to one giant operator, Fairfax journalist Adele Ferguson wrote at the time: “Its slick marketing promises a safe and sound place to live, yet retirement village operator Aveo is making a fortune by ripping off Australians through complex contracts and eye-watering exit fees.”

Many elderly residents found that when the time came to leave the villages, unexpected exit costs ate away at their initial investment. This often left them with insufficient spare change to fund a place at an aged care facility of their choice.

It is no surprise that pensioners are stumped by complicated legal documents meant to  maximise village operators’ financial grip on transactions.

But when an applied finance expert at Macquarie University could not make head nor tail of the same contracts, it was obvious to him that a tool was needed to help prospective villagers.

Mathematician Dr Tim Kyng’s mother wanted to move into a village and he was helping her with the comparisons between a few of them.

“As an expert in complex financial products, I didn’t expect to struggle to analyse retirement village contracts. I found great variation in the entry fees, ongoing fees and particularly the “deferred management fees” or exit fees across the retirement village industry,” Dr Kyng said.

So the academic developed a free calculator that simplifies the complex fee structures of different villages and converts them into a monthly ‘rental’ amount for easy cost comparison.

It takes less than five minutes to complete the village cost estimator survey once you have gathered up all the disclosure documents containing the summary of fees and costs for the retirement village. You will need to know the different villages’ entry, ongoing and exit fees, as well as what share of the capital gain you can keep once you sell out of the leasehold.

The free tool is available here

“It is important that consumers are able to compare the cost of retirement housing, as well as the facilities and the social environment,” Dr Kyng said.

“To help comparison shopping, consumers should be able to get key cost information in clear language, when they are first looking around. Some retirement villages are withholding key cost information or only giving it in complex documents.”

However, new legislation introduced this year in some states require that operators be more transparent about fees and if they are not, they can be reported to your government’s  consumer affairs division.

What can you do if you need help?
The following organisations provide consumer advice on retirement village matters in your state or territory: 

Vic                 Consumer Association of Victoria
NSW               Office of Fair Trading
Qld                Office of Fair Trading
SA                  Consumer and Business Services
WA                 Department of Commerce
Tas                Consumer Affairs and Fair Trading
NT                  NT Consumer Affairs
ACT                Access Canberra

The following organisations provide free legal advice in your state or territory: 
Consumer Action Law Centre, Victoria 
Legal Aid, Queensland 
Legal Aid, New South Wales 
Legal Aid Western Australia
Legal Aid Commission of Tasmania 
Legal Services Commission of South Australia
Legal Aid, Northern Territory
Legal Aid ACT

Have you ever been bamboozled by the contract terms of a retirement village but signed on anyway? Who helped you to understand your contract? Would you ever consider buying a leasehold in a retirement village?

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    COMMENTS

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    MICK
    16th Nov 2017
    10:41am
    Don't expect the documentation to improve much. Retirees who fail to read documents are to blame and that is why you go to a lawyer and say 'tell me all the bad bits'. If that does not happen then lay the blame where it belongs. Having said that the retirement village business has been fraudulently run for decades and politicians are fully aware of this. The reason it has not been fixed? Political donations. To both sides.
    retvilldotnet
    16th Nov 2017
    11:04am
    Hello Mick,
    From my own experience it is a little tough to say retirees who fail to read documents are to blame, a contributor yes. I took legal advice, it was completely useless as i found to my cost. My contract says things the operator claims are just optional for them, my only redress is court action, Consumer Vic not interested. The regulator Consumer Vic in my experience was simply useless. I finally took a case to VCAT, my share of a $406,000.00 overcharge to residents over 10 years, and won on a case Consumer Vic had dismissed on a phone call from the CEO.
    Unfortunately the problems can be complex but I do agree that the reason it goes on is because the legislators and the regulators allow it to go on.
    Koj
    17th Nov 2017
    4:55pm
    Hi Mick
    you can't have it both ways.... "retirees who fail to read the documents are to blame" then "(it's) why you go to a lawyer and say "tell me all the bad bits"... followed by (if you don't do this) "if this does not happen then lay the blame where it belongs"
    Get your mind clear.... are you saying folks should read the documents and be able to make a clear judgement, or are you saying you should go to a lawyer and ask them to understand then explain contract ramifications?
    I haven't yet investigated retirement village possibilities, but the story we are commenting on says that an applied finance expert can't make sense of the contracts.
    Personally I'm not big on getting financial or legal advice... having seen too many boofheads getting paid for stuff they are not competent in.
    I believe there is legislation relating to clarity in contracts.
    almost a grey hair
    26th Apr 2018
    5:38pm
    yeh my parents went to a conveyancer who merely conveys the contracts from one entity to another not a solicitor, who you would think would at least read the contract. they wanted it cheap, they got it cheap. However when they depart, the monthly fee must be paid until unit sold, refurbished to the village owners discretion, and then the owner gets half the capital gain and after 14 years thats not a bad little earner eh.
    retvilldotnet
    16th Nov 2017
    10:55am
    Q. Have you ever been bamboozled by the contract terms of a retirement village but signed on anyway? A. YES, We had moved out of our house and were living in a caravan then discovered the first problem. The sales person (on multiple occasions) had given us incorrect information that was not reflected in the contract.
    Q.Who helped you to understand your contract? A. ME, I used a solicitor pre-sale but the advice was useless as I found to my cost post purchase.
    Q. Would you ever consider buying a leasehold in a retirement village? A. NO, NO, NO, Never ever again.

    The Deferred Management Fee model is merely a mechanism designed to transfer the maximum capital value from the retiree to the operator. It was designed for the DMF rate of say 35% to reflect a 35% discount to the outright purchase price of a commensurate property within the general community. Now retirees pay close if not equal to an ownership cost for just a conditional occupancy and can suffer a dramatic reduction in their capital wealth over just a short period of occupancy. The true cost of living in a retirement village is hidden behind the smoke and mirrors of the retirement village industry.
    Sen.Cit.90
    16th Nov 2017
    12:01pm
    Hi, revilldotnet,
    Yes, I'm with you, I too was lied to by the agent. My solicitor was useless. Many verbal interpretations by the agent were lies (he is now deceased) and the village now has its fourth owner. As you say above to Mick, comprehension of the contract by the purchaser are not enough; it is imperative that a solicitor conversant with all the implications of retirement village contracts be used.
    Your last Deferred Management paragraph is spot on.
    Jennie
    16th Nov 2017
    12:06pm
    Ours was a new retirement village so with a leap of faith we decided to buy off the plan and put down a deposit. And we also were lied to by the agent and the operators. A group of prospective residents pooled money including us, to employ a lawyer who is an expert in retirement village law/contracts. It turned into a battle between us and the operators. We got some items in the contract modified to our advantage but STILL feel ripped off.
    It is NOT straightforward even with legal assistance.
    floss
    16th Nov 2017
    11:55am
    Hard to beat the Big End of Town when they control the Government.
    Jennie
    16th Nov 2017
    12:01pm
    I used the calculator. Its designers reveal it is a beta version and they would like feedback to improve it. It does need improving. For example we have to refurbish on moving out which means at the very least recarpeting and a total paint job, cleaning, probably plus new appliances. There is no section in the calculator to indicate this cost. However there is no "contact us" or similar option on the calculator website so I can send feedback.
    Any ideas from the author of the article above, or anyone?
    retvilldotnet
    16th Nov 2017
    3:08pm
    Try this one at the bottom of this page. http://www.smh.com.au/interactive/2017/retirement-racket/the-get-poor-quick-scheme/
    A little simpler to use and your input data stays on the screen. You would have to add a refurbishment cost and/or a selling cost manually.
    The cost most people leave out of their calculation is the 'loss of earnings' on the 'loan' amount (in-going amount minus deferred management fee) to the operator during the period of occupancy. It can also be calculated as a written down present day value for the 'loan' amount once it comes back at the end of occupancy. Inflation will have devalued the buying power over time.
    Jennie
    18th Nov 2017
    5:51pm
    You are correct and thank you for the information. We do know that a move to a retirement village is not an investment. That is clear before moving in, but yes, we do expect worth for our money and not to be ripped off. Actually the worst thing about living in a close community is the enclave of narcissist residents who make many nice residents' lives hell.
    Baz
    16th Nov 2017
    12:22pm
    One suggested improvement in the calculator is including renovation and sale costs in the exit fees - they are normally extras.
    Roscoe77
    16th Nov 2017
    12:53pm
    I just used the calculator and feel a bit misled. I would like to see a breakdown of the final costs.

    My DMF is $25,000 per annum and recurrent charges are almost $12,000 per annum. For the 1 year monthly comparison it states my rent is the equivalent of $4231.83.

    DMF plus recurrent charge to me adds up to $37,000 per year, or just over $3083 per month. Where does the extra $1150 come from in the calculation?
    Lark Force
    16th Nov 2017
    1:08pm
    Fees are just one thing, there are other considerations.

    Is there an on site manager?

    Do "outsiders", i.e non residents use the pool, showers and other facilities?- At residents expense!
    If you don't have title to the Unit and the Land it sits on you can't get bridging finance to buy another house or unit to escape to if you don't like it.
    Are the percentages returned based on your entry price or the resale price?
    If you can't get quotes for repainting, recarpeting, appliance replacements etc you may be stuck with managers mates high prices.
    If the owner sells out, will your contract remain the same?
    It is, and will remain a minefield that will stump even your best Financial Advisor.
    The operators Legal Eagles will see to that.

    16th Nov 2017
    2:08pm
    I prefer my independence and freedom, so I choose to 100% REJECT retirement villages.

    Retirement villages = handing over the control of your living circumstances to corporate strangers who make mega $$$$$$$$$$$ from your existence. Yep, mega profit that comes from YOUR money (if you live in a retirement village).
    retvilldotnet
    16th Nov 2017
    2:34pm
    Not sure if the administrator will allow this post but if you google retvilldotnet you will find links to my web site where I have attempted to place those things that I have learned, many to my cost, since entering a not-for-profit retirement village in 2007.
    Rosret
    16th Nov 2017
    7:47pm
    Thank you for sharing. :)
    johnp
    18th Nov 2017
    5:38pm
    All good info from most here especially retvilldotnet
    I was very surprised that so called respected journalists (Frances Whiting and Hugh Lunn) associated themselves with AVEO.
    see https://www.aveo.com.au/event/talk-newstead-hugh-lunn/
    retvilldotnet
    19th Nov 2017
    6:53am
    For those interested I prepared some tables for my web site showing 1. The financial destiny of four retirees who made differing retirement accommodation decisions and 2. The 'accommodation value' and the 'lifestyle' value in the cost of living in a retirement village. Now I am not an accountant and I am not a solicitor. I spent 26 years in the banking industry, 11 years in small business and a couple with the tax department. These tables are my own calculations based on what I understand but they do show a hidden side to the retirement village industry. Everyone is talking about contracts, fees etc. and rightfully so however only a few are talking about the very structure of the industry particularly the Deferred Management Fee model. This excessive transfer of capital wealth from retirees to operators for essentially residential accommodation with treats happens to every resident in every retirement village in Australia. http://www.retvill.net/
    johnp
    27th Apr 2018
    11:07am
    Well done, retvilldotnet, all credit to yourself. your web site etc should someway be made much more public !


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