3 September 2019
The collapse of a national retirement village operator has outlined the need for State Governments around Australia to press pause on plans to introduce laws requiring retirement villages to buy back unsold units.
On August 29, the Settlers Lifestyle group - which runs five villages in Queensland, NSW and Western Australia - announced that it was entering administration.
Administrator Damien Hodgkinson of DEM Asia Group told Commercial Real Estate that the Queensland Government’s legislation, which requires retirement village operators to buy back units from residents if they remain unsold for 18 months, had triggered an “insolvency event” at Lifestyle’s Rockhampton village. This legislation began operation in May this year.
Forum Partners, the investment fund which owned the villages, also pointed the finger at the Queensland buyback rules.
While the villages’ residents are not affected at this time, and the administrators are hoping to sell the business as a going concern, the financial plight of the Settlers Lifestyle group has highlighted the need for governments around Australia to press pause on rolling out mandatory buyback reforms.
Time to reassess rush to mandatory buybacks
The push to introduce mandatory unit buyback reforms seems to be mainly about State regulators competing with each other to try to look like the toughest gunslinger in town.
This cavalier attitude - and a lack of sound and sober policy-making - is now bearing fruit.
In 2016, South Australia introduced reforms to require village operators to pay the aged care costs of a departing resident, if the resident’s unit had not sold.
These payments can be made for up to 18 months, and can only happen if the resident has limited financial means. The payments cannot exceed 85 per cent of the unit’s value.
In 2017, the Victorian Government introduced similar reforms, which allows non-owner residents to receive aged care costs when they depart.
The Queensland Government then took this a step further, when it in November 2017 required operators to buyback leasehold and licence units if they remained unsold 18 months after departure. It then extended the reform to cover freehold units from May 2019.
While the South Australian and Victorian reforms were limited to paying ongoing aged care costs, the Queensland reform went one step further and required operators to pay for the full unit entitlement at a single point in time.
The Queensland Government was also specifically warned in 2019 that extending the reform to freehold units was very dangerous and could lead to smaller villages getting into financial strife - but went ahead at any rate and passed and proclaimed the legislation.
NSW is now considering even more draconian reforms - requiring metropolitan operators to buyback unsold units within six months and regional areas within 12 months.
It is basing this reform on the Greiner inquiry into the NSW retirement village sector, which claimed the move would bring “NSW in line with South Australia and Queensland”. (Mrs Greiner recommended an 18 month time limit for regional areas, which has been reduced to 12 months by the government).
On 21 August, the Property Council of Australia delivered research which suggested the NSW reform could cause the closure of regional and outer metropolitan villages and severely impact the profitability of all villages. Industry leaders also said the reform had the potential to severely limit badly-needed innovation in the retirement village sector.
It’s time to press pause
While everyone is in favour of consumer-friendly laws, these laws should also preferably not result in widespread industry damage and the collapse of individual businesses.
This is particularly the case in the retirement village industry, which houses elderly and sometimes vulnerable individuals.
There are, without question, important reforms which need to be introduced to help retirement village consumers.
These reforms include limiting the period that a resident is required to pay fees, after having left the village, and making it easier for residents to use external agents to sell their unit (such as through requiring operators to hand over prospective buyer waiting lists to these agents).
The collapse of the Settlers Lifestyle group indicates however that the mandatory buyback reforms are a step too far.
If body corporates are not required to purchase the unsold units of individual owners in general apartment blocks, then it is not clear why retirement village operators are put in the same position.
Until now, the industry has dealt with this issue through self-regulation, with some operators offering their own voluntary buyback policy as a buyer incentive.
Leaving the mandatory buyback reform issue to the market - or at the very least excluding smaller strata-owned villages from the reform - would appear to be the best and most equitable approach.
By Mark Skelsey, Editor at Downsizing.com.au - email Mark at [email protected]