12 August 2019
Retirement village operators are being forced to state their proposed fee structure - and may also have to be clearer about overall costs - as part of reforms which affect how operators advertise vacant units.
Across Australia, in recent years, retirement villages have faced a wave of additional regulation from State Governments, much of it designed to improve pre-purchase transparency.
While the reform process has to date focussed on plain English contractual material supplied to prospective buyers, it is now extending to how retirement villages advertise their vacant units.
Reforms underway in NSW and WA
The NSW Government has, from 1 July 2019, banned retirement village operators from advertising that a prospective resident would “own” a unit, unless the unit was available under strata, community or company title.
The government’s new retirement village rules of conduct also require villages to state, in advertising material, whether a departure fee would apply to the unit, and whether this fee was linked to capital gain.
The Western Australian Government is looking at going even further, and requiring operators to be clearer about the potential overall price when they advertise units.
The government has released a consultation paper about further reforms to the State’s retirement villages legislation.
The paper states: “Widespread industry marketing practices that promote the retirement village product as being the same or equivalent to a residential housing purchase, are resulting in consumer misunderstanding.”
“This misunderstanding can lead to significant consumer detriment and operates to undermine consumer confidence in the retirement village product.
“The significant fees and charges which are payable at the end of their residency can come as a shock to those who regard the transaction as similar to a housing purchase. This can cause significant consumer distress and dissatisfaction with the retirement village product.”
The paper states that it is difficult for consumers to determine the likely overall cost of moving into a retirement village, in particular how the deferred management (also known as exit or departure) fee will apply.
“The deferred management fee (DMF) model is both unusual and complex. Both of these features impede consumers’ ability to understand the model. A significant number of consumers therefore struggle to understand this price structure and its defining fee, the DMF.
“Further, as there is no equivalent in general housing to the DMF, its purpose and meaning is also unclear to consumers and those outside of the industry itself.”
Given this, the paper proposes a number of options to improve transparency.
One option is that advertisements and promotional material would be required to state two prices, the upfront payment for the unit with a DMF payable on exit and the upfront payment for the unit without a DMF payable on exit.
Retirement village calculator can help consumers
In 2017, Macquarie University introduced a retirement village calculator to help residents compare the likely cost of different retirement villages.
The calculator was developed by Dr Tim Kyng, from Macquarie University, after a frustrating experience when endeavouring to assist his mother in choosing between retirement villages.
“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.
“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.”
By Mark Skelsey, News Editor at Downsizing.com.au - email Mark at [email protected]