15 July 2019
Independent valuers may be used to determine the price of unsold retirement village units as part of a proposed mandatory buyback reform which is designed to stop residents having to wait up to three years to offload their dwellings.
The proposal to use independent valuers is part of a discussion paper issued by the NSW Government on 9 July 2019, looking at the buyback and related reforms.
The release of the discussion paper follows an election commitment, made by NSW’s Liberal and National Government, in February 2019.
The reforms will require village operators to buy back units within six months of an owner moving out, if the unit is based in the Sydney metropolitan area and has not sold. The time limit will be 12 months in regional areas.
The reform is meant to benefit retirement village 'registered interest holders', who generally hold village units as strata or community title, or via long-term leases.
At the same time, the government has announced a 42-day limit on the length of time villages can charge general service fees after a resident leaves a retirement village.
The discussion paper is seeking feedback on the best ways to implement these significant reforms, before the introduction of legislation into the NSW Parliament.
Potential hit on village profits
The paper says the mandatory buyback reform is required because residents are currently waiting an average of 6.7 months to receive money from the sale of their unit (known as an exit entitlement) in the Sydney metropolitan area, and 13.3 months in regional areas.
It also indicates though that, in the worst case scenario, some owners are waiting up to 17 months (one and a half years) in metropolitan areas and 33 months (nearly three years) in regional areas. At times, these unit owners have been forced to continue paying fees, while waiting for the unit to be sold.
“Former residents and their families can face great uncertainty about when they will receive payments,” the paper says. “Residents who wish to move to another village or transition into aged care are particularly disadvantaged as they often rely upon the money for their new accommodation”.
However, the paper acknowledges that implementing the mandatory buyback reform has the potential to both benefit and impact village operators and residents.
The paper says that, if the reform is implemented to apply to existing unit owners, and operators fail to become more efficient, average metropolitan village profits could fall between 12-17 per cent between 2020-2033, and regional village profits could fall by 16-25 per cent during the same period.
The potential profit loss would be far lower if the reform only applied to future unit purchases, the paper says.
How to calculate unit value
The discussion paper canvasses what is possibly the reform’s most difficult issue - how to calculate the value of a unit when it has remained unsold.
It suggests that, when a village operator and a former resident do not agree on the unit’s value, an independent valuer should be appointed, as agreed by both parties or by a body such as the Australian Property Institute.
It also says that determining the ‘trigger point’ for the six or 12 month buyback period is still being decided (this could include either the date the property is listed for sale or when the resident leaves the village, or another option).
Possible increase in consumer confidence...and price rises
The paper examines the possible benefits and impacts for consumers. The paper says it is possible that, to be able to pay out departing unit owners, operators may in fact “charge higher upfront payments for entering a village”.
However, it also notes that the reform has the potential to increase consumer confidence in the industry, and therefore demand, because of the improved certainty about receiving funds in a timely manner following village departures.
The situation around Australia
The NSW move into mandatory buybacks and greater fee control is part of a broader push across Australia to increase the regulation of retirement villages.
For instance, the NSW Government on 1 July 2019 introduced new statutory retirement village conduct rules which required village operators to improve co-operation with external real estate agents.
In May 2019, Queensland’s mandatory buyback reform commenced. This reform applied to existing freehold and leasehold unit owners, while the NSW Government clearly appears to heading in the direction of limiting mandatory buybacks to future unit owners.
Meanwhile, both Victoria (in 2017) and South Australia (in 2016) introduced legislation which requires village operators to pay the daily accommodation payments for village residents moving into aged care, if their unit remains unsold.
The Property Council of Australia has indicated it is going to run a strong campaign against the proposed NSW reforms, calling them the ‘strictest in Australia’. However, as of 15 July, there was no media release responding to the discussion paper on the organisation’s website.
Have your say
The discussion paper is open for comment until 16 August 2019. This is a good opportunity to influence NSW retirement village public policy.
Downsizing.com.au will be continuing to cover what is expected to be a hot debate about the consumer-facing benefits and impacts of these reforms. Subscribe to our newsletter here.
And don’t forget that Downsizing.com.au is the best place to search for new retirement village and all other downsizing-friendly and over 50s properties.
By Mark Skelsey, News Editor at Downsizing.com.au - contact Mark at news@downsizing,com.au