Retirement village units will need to be sold to a new occupant, or bought back by the village operator, within 12 months of a resident exiting the unit, under new reforms backed by the NSW Government.
On 14 February, NSW Minister for Better Regulation Matt Kean announced the reforms, which are designed to woo the all-important seniors vote in the lead-up to the State election on 23 March.
The reforms will require village operators to sell or buy back units within six months of the departure of retirees in metropolitan areas, or 12 months in regional areas.
The reforms are designed to give retirement village unit purchasers and residents, and their families, greater peace of mind and confidence.
While the government’s announcement has been welcomed by retirement village residents, the retirement village industry has said there needs to be extensive consultation on policy detail to avoid both operators and residents being disadvantaged.
No current statutory buy back in NSW
Until now, there have been no statutory buyback rights in NSW for people who own village units outright or have a long-term lease where they are entitled to benefit from capital gains (formally known as ‘registered interest holders’)
This differs to the situation in other States, primarily South Australia and Queensland, where State laws require operators to buy back units within 18 months.
However, around 80 per cent of NSW retirement villages offer voluntary contractual buy back guarantees, where the operator will purchase back the unit within a set time limit if a buyer is not found.
The NSW Government’s announcement would appear to be a step towards extending this level of protection to all retirement villages, and to create a consistent minimum time period across the State.
In addition, Minister Kean has announced a 42-day limit on the length of time villages can charge for general services after a resident leaves a retirement village.
Reforms outlined in Greiner review
The buy back and fee time limit reforms were recommended in a review of the retirement village sector by Kathryn Greiner (who in February was also appointed by the NSW Government as a roving ambassador for retirement village residents). Ms Greiner’s review said, at present, it was taking up to four years for units to be sold.
Ms Greiner’s report said: “A maximum timeframe for the termination period of the contract should be introduced. This would provide a level of certainty to residents and their families that are terminating a retirement village contract.”
“Clarifying the timeframe and application to all operators and types of interest holders would ensure a consistent approach across the sector and increase transparency for the benefit of residents and their families
“This should address the circumstance where the sales process may be drawn out during a stressful time for residents and their families.”
There are still many details to be fleshed out around the announcement, which will require presentation of new legislation to the NSW Parliament (most likely later this year).
For instance, according to a story in the SMH, the president of the Retirement Village Residents Association, Jim Gibbons, said there was a need for a mechanism to determine fair market value at the end of the six or 12-month time limit.
In addition, it’s not clear at this stage whether the reform will apply to existing, or only future, retirement village residents.
“These significant reforms will require legislation, so the transitional arrangements will be worked out in that process,” a spokeswoman for Mr Kean told Downsizing.com.au.
In a statement, the Property Council of NSW Executive Director Jane Fitzgerald said the reforms “sound reasonable at face value but potential unintended consequences must be further considered”.
“There are challenges that need to be addressed in the policy detail and it is in everyone’s interest that we avoid the pitfalls that policies such as buybacks have created in other jurisdictions,” Ms Fitzgerald said.
“The mandatory buyback policy has the real potential to decrease the value of individual properties within retirement villages and adversely impact re-sale prices. This would hurt residents and operators.
“Smaller operators, in particular, will find it challenging to source capital to buy back units when required and cover the significant liability that will be placed on the balance sheet. This in turn risks investment in an industry critical to meeting demand from our ageing population.”
Mark Skelsey is the News Editor at Downsizing.com.au
Published 20 February 2019