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CRICOS No. 00213Ja university for the worldrealR
Retirement Village Tenure – What is it?
Dr Lucy Cradduck, Lecturer, QUT
API NSW Country Conference
4-5 May 2012, Newcastle
CRICOS No. 00213Ja university for the worldrealR
PRESENTATION OUTLINE
• Research context • Why is this important?• What is a ‘retirement village’?• What is a SCILU?• Tenure Types• Changes • Issues
CRICOS No. 00213Ja university for the worldrealR
RESEARCH CONTEXT
The number of retirees is increasing (ABS December 2011)
Australia 2013 (est.) Australia 2031 (est.)
CRICOS No. 00213Ja university for the worldrealR
Considerations
• Fundamentals of RV industry remain strong but >80% retirees still live in ‘traditional’ housing (ABS 2006)
• Previous research has looked at -– Appropriate valuation methodologies (Elliot, Earle & Reed,
2002; McAuliffe, 2010)– Public housing/rental accommodation (McNelis, 2004)– Ability of aged care facilities to meet long term demand
(Csesko and Reed, 2008)– Push/pull factors, i.e. health or death of spouse (Stimson
and McCrea (2004)– Impact of tenure type in Qld (Blake and Cradduck 2010) and
Australia-wide (Cradduck and Blake, 2012)
CRICOS No. 00213Ja university for the worldrealR
WHY IS THIS IMPORTANT?• RVs targeted at lifestyle and ‘longevity’
• i.e. moving in and living there until death
• But Some residents leave ‘early’ for reasons other than death• Divorce, relocating after death of first resident, health
• Despite legislated disclosure obligations confusion exists over the tenure obtained and associated fees and when these are payable– Low ‘prose’ and ‘document’ literacy levels (ABS 2006a)– Lack of communication with children
• Retirees’ desire to preserve capital is at odds with many retirement village offerings
CRICOS No. 00213Ja university for the worldrealR
WHAT IS A RETIREMENT VILLAGE?
• Section 5 RVA –– … a complex containing residential
premises that are:(a) Predominantly or exclusively … occupied, by
retired [person who have entered into village contracts with an operator …
Not • Aged care• Nursing home• Residential parks and mobile home estates• Boarding house• Employee accommodation in RV• Agreements with NSW Aboriginal Housing Officer or
NSW Land and Housing Corporation
CRICOS No. 00213Ja university for the worldrealR
Relevant NSW legislation
• Retirement Villages Act 1999• Retirement Villages Regulation 2009• Strata Schemes Management Act 1996
– In a strata retirement village the residents are responsible for the capital items in their SCILU
• In other villages, the operator maintains capital items not belonging to residents
– A strata retirement village bylaws can restrict occupation by under 18 year olds
• Other strata schemes cannot– A strata retirement villages’ financial statements are separate for
those related to the provisions of RV services– A strata retirement village can restrict occupation based on age
• Other strata schemes cannot– Strata scheme financial statements separate from those for RV
services
CRICOS No. 00213Ja university for the worldrealR
SCILU
• An RV is consistently defined as a complex of dwellings where older, or retired, members of the community reside or that which is used for the purpose of a RV scheme
• No definition of SCILU (self contained independent living units)– Can be stand alone villa, unit, duplex, OR townhouse – “Self care” or “serviced”
• Generally SCILU tenure is offered as one of – – Loan and/or License agreement– Leasehold/Freehold – Rental
CRICOS No. 00213Ja university for the worldrealR
TENURE TYPES
• Leasehold– Registered lease on RV title deed
• Licence to Occupy and Loan– Loan of funds with licence to occupy– Lesser rights
• Freehold/Strata– Individual title registered in residents’ name– In practice usually have agreement where resident will
pay percentage of CG plus DMF on leaving
• Rental - rare• Company title schemes – rare
– Similar to strata operated under company title with shares to residents
CRICOS No. 00213Ja university for the worldrealR
Related matters
• Financial aspects associated with tenure – The ‘buy-in’ costs– Deferred management fees (‘DMF’)
• Also referred to as ‘exit’ fees as payable only on a resident ‘leaving’
– Participation in capital gains/losses– Ongoing recurrent charges
• Strata fees (if applicable)• Service fees (various as applicable)• May be payable until new resident takes up occupancy – need to check actual agreement
CRICOS No. 00213Ja university for the worldrealR
DMF
• Departure fee payable on exiting RV• Not consistent
– Can range from 4% to maximum 40%
• Information not easily accessible• Terms of agreements change over time
– Need to check the specific RV documentation for relevant unit to ascertain exact amount
– Need to check relevant legislative provisions at time the RV documentation was signed
CRICOS No. 00213Ja university for the worldrealR
Capital gain/loss
• Not consistent – Range from no entitlement to 100%– Strata – may have obligation back to pay
fee even if freehold title in residents’ name
• Information not easily accessible• Terms of agreements change over time
– Need to check the specific RV documentation for relevant unit to ascertain exact amount
– Need to check relevant legislative provisions at time the RV documentation was signed
CRICOS No. 00213Ja university for the worldrealR
CHANGES
• New proposed Standard Form Village contract– Consultation ends 18 May 2012– Will apply to all tenure types– If strata or freehold will also need a sale contract– See Fair Trading NSW website
http://www.fairtrading.nsw.gov.au/About_us/Legislation/Comment_on_proposed_legislation/Standard_contract_for_retirement_villages.html
IssueExisting contracts will continue to be valid
CRICOS No. 00213Ja university for the worldrealR
Extract from Standard Form Village Contract
CRICOS No. 00213Ja university for the worldrealR
ISSUES• Does the ability to participate in capital
gain/loss or related fees/DMF impact on value?• Does the application of RV specific legislation
impact on value?• In a RV does the limited pool of potential
residents impact on value?• For a strata retirement village need to check
both strata scheme and RV financial data• Depending on tenure type – who owns capital
items in the resident’s unit?• Are you reviewing the correct version of the RV
contract and law?