11 June 2019
Retirement villages are arguably the most traditional and well-known form of seniors housing in Australia, with the first village credited as being built in Brisbane in the 1920s.
Seniors are typically attracted to the relative affordability of retirement villages, with the median village unit across Australia being just two-thirds of the price of general housing in the surrounding area. This allows seniors to release equity from the sale of the family home.
Separately, seniors are also attracted to the fact they are moving into a supportive and like-minded community, and can enjoy social activities along with good security and a range of health and other services.
There is also the considerable benefit in that you no longer need to look after the family home!
If you’ve found what looks to be the perfect retirement village, or are still shopping around, you will need to know the right questions to ask to better understand what’s on offer.
Downsizing.com.au can help you along the way with twelve initial questions you should be asking your potential retirement village operator, and more importantly checking out in the paperwork.
We’d also argue it’s essential to have an independent legal advisor on your side when making these inquiries, or for the advisor to ask the questions for you. This is particularly the case given that retirement village law differs on a State-by-State basis.
1) Do I have to pay stamp duty?
As this blog by a NSW solicitor illustrates, stamp duty may or may not be payable when moving into a retirement village. Despite this, and somewhat surprisingly, the standard summary disclosure fact sheets distributed by Fair Trading NSW don’t appear require operators to outline whether stamp duty is payable.
However, the same disclosure sheets distributed in other States do require a stamp duty disclosure.
Stamp duty can be a significant impost and it is important you understand whether you will need to pay it, before you move in.
2) How is the deferred management fee calculated?
Most retirement villages charge a deferred management fee (also known as an exit, outgoing or departure fee).
This fee is effectively a “enjoy now, pay later” scheme, which helps reduce the costs of moving into a retirement village. For instance, the cost of a retirement village independent living unit in Sydney is just 44 per cent of the median price of surrounding general homes.
It is very important that you understand how the deferred management fee is calculated.
As the Retirement Living Council’s 2018 Census makes clear, there are different models for this fee, either based on the incoming or outgoing price and also sometimes a share of capital gains over the occupancy period.
In addition, the maximum fee levels can vary from village-to-village, as can the period in which this maximum level is reached. The Census finds that “the maximum deferred payment percentage for 93 per cent of villages is 36 per cent or below.”
You may be able to shop around for the exit fee arrangement which suits you best, given how long you think you may be staying in the village. Furthermore, operators sometimes offer a range of exit and ongoing fee (see below) options in response to buyer needs.
3) What are the ongoing fees or charges and how easily can these be changed?
Apart from the exit fee, it is likely that ongoing fees (sometimes called charges) will apply. Across Australia, in 2018, the average monthly retirement village fee was $564.
You need to know what services these fees will cover, along with what other services in the village may be optional or offered on a separate ‘pay for service’ basis. Importantly, you also need to know the rights of the operator to vary these fees.
For instance, in NSW, the village operator is able to vary fees and charges according to a fixed formula no more than once a year. You need to understand what this formula is.
Furthermore, NSW is looking at introducing laws which stop a village operator from charging fees for longer than six weeks after a resident has left a village.
4) Can I employ a real estate agent to sell my unit and will the agent be able to hold open for inspections and put up signage?
In general, across Australia, under State law, you are able to employ your own real estate agent to sell a retirement village unit you have purchased. However, many people continue to use the agents supplied by the village operator.
Under the NSW and Victorian retirement villages law, village operators are not allowed to interfere with the work of agents you have appointed, including taking down “For Sale” signs.
However, the village does have the right to determine how the signage must look, and as such as it is worth asking about the village’s signage guidelines along with the operator’s attitude towards open for inspection visits.
Retirement village operators have set up a website called A Wise Move, which seeks to inform people about village life.
The guide available at this website states that operators have the right to refuse buyers introduced by external agents, if they do not meet the village age limit or are considered to be unsuitable. The guide also gives some other important pros and cons when it comes to hiring an agent.
It is very important you are comfortable with the arrangements for agents, before you move into the village.
5) Is there a voluntary or mandatory buyback in place?
Across Australia, some 65 per cent of villages have a buyback guarantee (which is a combination of both legal requirements and voluntary contractual obligation).
These buyback guarantees typically ensure that your unit will be bought back by the operator, if it is not sold after a certain period of time. They provide significant peace of mind for village unit owners.
It is important you understand how the buyback will work, including how the value of the unit is set and the relevant time periods.
More recently, States have moved to make unit buybacks mandatory, rather than voluntary.
Mandatory buyback legislation is now in place in Queensland and South Australia, while NSW has indicated it will be introducing the reform during 2019 and has released some preliminary information about its proposed scheme.
6) What are the rules about pets?
If you’re looking at bringing your fluffy friend into the retirement village with you, you will be well-advised to ask about this.
It’s not unusual for retirement villages to have their own rules in relation to companion animals, and sometimes mandatory disclosure documents do not provide the level of detail you need. In this instance, you may need to ask for an actual copy of the village rules.
7) What are the rules about people visiting?
Just as with pets, each village or village operator can have different rules about the rights of residents to have overnight or temporary visitors. Some, for instance, require you to notify the manager about overnight visitors.
It is worth clarifying this before you make the move.
8) What is the right of my spouse or relative when I leave?
It is important that you clarify the rights of spouses or relatives to occupy the unit if you move out, or pass away, particularly if these people are not named on the contract.
Some contracts outline that if the ‘owner’ or ‘resident’ passes away, their successor – even if they are a partner or spouse – loses the right to reside in the home without the written approval of the village operator.
9) Do you have any plans to redevelop or extend the site?
A proposed site redevelopment could cause disruption to your village life. It is well worth asking the operator whether it is seeking, or has secured, rezoning or development approval for a village extension or redevelopment.
The construction of a new and nearby retirement village development could also mean there could be increased competition for the same buyers, when the time comes to sell your unit.
To this end, the Retirement Living Council’s Code of Conduct for village operator has committed that agents acting for village operators will give “equal attention...to the sale of previously occupied homes and new homes” - in other words to not prioritise the sale of new units over existing units.
10) What are the rules about parking, including boat parking?
Seniors these days are keen to remain mobile, and that includes continuing to be able to drive. As well, boats can provide a lot of enjoyment in the golden years. Villages tend to have their own rules about resident parking, and different levels of parking availability, so it is well worth checking out this issue.
11) Will you need to pay for your unit’s refurbishment before you leave?
It is possible that you will need to pay for a refurbishment of your unit when you leave. Sometimes, this is covered in your contract, while at other times this is something which is agreed between yourself and the operator to make the unit more attractive for sale.
12) What security is in place?
Feeling safe and secure is the highest priority for any retiree. You need to understand what (if any) security secures the village offers, plus what security systems are installed in and around your unit (such as screen doors or window locks).
Conclusion
As mentioned above, buying into a retirement village is widely regarded as a good move. It means you will be moving into a like-minded and supportive community, with specialist services and facilities, and can leave the worries of looking after the old family home behind.
However, you do need to do your homework, and try to limit surprises.
The above are just a small selection of questions you may want to ask.
For further information, the Retirement Living Council’s website A Wise Move is a good place to start. You may also want to check out the new Retirement Living Code of Conduct and ask if your village operator subscribes to this.
You will also be well-advised to subscribe to Downsizing.com.au’s newsletter service to keep up-to-date with the ever-changing retirement village regulatory environment. What’s more, you can check out hundreds of retirement village listings on the site.
We will also be shortly preparing a similar blog for land lease communities, which are emerging as an alternative model to retirement villages, particularly for younger retirees.
By Mark Skelsey, News Editor at Downsizing.com.au. Please email Mark at [email protected]