Retirement villages are booming, but what are the catches?

Friday, 19 April 2019

They're billed as retirement resorts – lakes, lifestyle, low stress and a bloke's shed to boot.

But unravelling the complexity of retirement village contracts is anything but low stress.

With 41,000 Kiwis now adopting such grand-sounding addresses as 'Rita Angus', 'Bethlehem Shores' or 'Hutt Gables', and another 1750 units being built every year, retirement villages are booming.

The model seems simple enough: you pay for the right to live in a unit for life and you get a like-minded community of older people, a bowling green, bingo and maybe a swimming pool. Then when you move out or die, you get back whatever you paid, minus a fee of 20-30 per cent. Call it a rental for the use – and upkeep – of the facilities.

**READ MORE:

* Fishhooks of moving from retirement village unit to rest home care

* Five things to know about living in a retirement village

* Lotto-like windfall for retirees cashing up and moving to villages

* New checklist devised for people considering moving to retirement villages**

The upside is someone else deals with maintenance and bills; the downside is you give up some control and any capital gain in the value of your unit.

But the devil is in the detail. Villages charge weekly fees, which can continue long after you've departed. The capital loss means that, if you need to move, you'll struggle to buy elsewhere. And as operators increase minimum age limits, from 55 anywhere up to 75, you can find your able, independent community suddenly looks more like a care home.

Sceptics say the rising age is a ploy to turn over units more quickly, as the management fee tends to be capped after 3-5 years so the shorter the stay, the more frequently operators can clip the ticket. 

Retirement Villages Association executive director John Collyns says rising age limits simply reflect reality – as people retire later, they're older when they move into villages. About one-third of his members have a minimum age of 65, another third say 70, and the other third is roughly split between 55 and 75.

Collyns says those moving into villages often want to downsize, free up some cash by selling the family home, or ditch home maintenance hassles. Their numbers are growing, and they now make up 13 per cent of all over-75s.

Asked if he thinks residents get a fair deal, Collyns says village agreements are transparent, and legal advice is compulsory.

'On day one, every resident will know, almost to the last dollar, how much they are going to get back in one year, five, 10, or whatever it might be.'

He also disputes the idea that village operators get rich from capital gain, as they have to pay that back – less the management fee – when the unit is unsold. But he concedes village owners get the use of that money in the meantime. With the flashest Auckland villas going for $2m, that's a $2m interest-free loan that can be invested. And the management fees, which increase as the unit gets more expensive, generally aren't taxed. 

Troy Churton, who covers retirement villages for financial watchdog the Commission for Financial Capability (CFFC), says most people aren't worried about how much capital gain they've missed out on, or what weekly payments are ongoing, when they're in their coffins. And most are happy with the move.

But there are fishhooks that can affect quality of life. He urges people contemplating retirement villages to consider three things: the personal, the legal and the financial.

Are they the kind of person who wants to live in a community of older people? Are they OK with potentially being charged weekly fees after they move on, or having to buy a new fridge they don't get to keep? And do they have enough money to deal with unexpected costs, or delays in getting money out?

'Relying on super in a retirement village is not something we think is ideal for people's wellbeing,' Churton says.

Mediator Jennifer Mahony gets a call about once a month about retirement village disputes. They're often about poor maintenance or ratty gardens, or promised upgrades failing to materialise. She says those considering the move should take their time, and not be afraid to complain once they get there.

Retirement village resident Anton Coetzee, who is on the Retirement Village Residents' Association executive committee, wants the government to improve retirement contract conditions.

'Even though it's compulsory for a new resident to go to a lawyer to scrutinise the document, it's almost a Hobson's Choice. Whether you go to a, b or c, they all have the same conditions. So if you want to move in, what do you do? You just have to close your eyes and take it.'

FEE FISHHOOKS

When Nelsonian Jack Fulton tried to sell his mother Edith's retirement village unit, the village operators wouldn't allow For Sale signs. He figured they had little incentive to speed the sale, because Edith's contract required her estate to keep paying the monthly village fee until the unit sold, though no-one was living there.

The sale took six months, leaving Fulton thousands of dollars out of pocket. But unlike most new retirement village residents, Edith owned her unit outright, so Fulton at least reaped the capital gain from the sale. 

Village operators charge weekly or monthly fees to cover operating costs such as staff wages, gardening, maintenance, rates and insurance. They range from about $100-$200 a week. Some companies fix that fee for life, some increase it annually – but not by more than the increase in superannuation, whereas others have no cap on the increase, creating a financial risk for those on fixed incomes.

While many major village owners now stop charging weekly fees when a resident dies or moves out, some operators keep charging until the unit is onsold. The fees must be halved after six months.

'What they're doing is not unlawful, but it is something to be aware of,' Churton says.

Kāpiti Coast village Parkwood continues charging fees after a unit is emptied. General manager Mark Rouse argues that's reasonable, as the village's fixed costs don't change. But Parkwood is also one of the few villages that gives outgoing residents a share of any capital gain, highlighting how difficult it is for residents to work out where they would be best off.

There can also be issues over what weekly fees should cover. Anton Coetzee had an 18-month dispute with the owners of his Omokoroa retirement village, near Tauranga, because he says they were using the weekly fee to recoup future maintenance costs, such as the replacement of roof tiles and cobblestones. His operator eventually switched to a fixed fee, linked to the Consumer Price Index, but Coetzee fears other operators are using the same model.

'Because the residents do not have a palate to take these people on, they just accept it.'

THE END

'In the end, when you want to terminate the agreement, that's when you realise things are not always as good as they appear in the beginning,' Coetzee says.

He's dealt with two families who have faced long waits to recover money owed to them after a loved one died. In most cases, when a resident leaves, village operators will pay out only once they've signed up a new resident.

But that process can be stalled still further by delayed refurbishments, or village owners undertaking major renovations from which the former resident reaps no benefit. In one case, 'refurbishment' took 11 months, Coetzee says. 

'Refurbishment might take four weeks – laying new carpets and repainting. But they take the kitchen out, they take the bathrooms out, sometimes realign interior walls, basically redo the whole thing from scratch. That can take months. Then they call that refurbishment.

'There's little incentive for them to hurry it up. They sit on the ex-resident's funds, interest free. And they still get their weekly fee, albeit reduced by 50 per cent after six months.'

The delays can also be masked by misleading documents. His own village says its average resale time is 29 days, but that's actually the delay after refurbishment is completed.

Some companies do pay interest if it takes more than six or nine months to resell a unit. Metlifecare pays out $20,000 as soon as the unit is vacant. In Australia, Ryman promises to pay out within six months, but that guarantee does not apply here. A spokesman says they've never had a unit take longer than six months to sell.

Collyns says villages don't profit from weekly fees and make money only when a unit is onsold, so there's a strong incentive to get replacement residents quickly. However, with a nationwide shortage of tradesmen, it's not always possible to complete refurbishment quickly. 

ON THE MOVE

Aileen Keery's​ husband Jim was disappearing into dementia, but didn't want to move from their home. When they visited Auckland's Pinesong Village and Jim liked the place, Aileen was so relieved they rushed in too quickly. 

'The village is beautiful. It has so many things on offer. It's like a resort.'

The villa turned out to get no winter sun – like living in a cave. 

That was six years ago. Now she's 82 and her husband is in care, so she's paying the same $716 monthly fee for their villa as she did for two people, plus the $700 monthly bill for her husband's care. He had to move to a nearby village as Pinesong had only luxury, ensuite care, which cost an unaffordable $85 extra a day. As it is, she's paying a $21 daily surcharge for him to have a toilet. Their four children help out, but things are still tight. 

'It leaves me with very little for food and clothing. You are budgeting very tightly. It is difficult.'

​Keery would be paying for her husband's care even if they had stayed in their own home. But the village option does seem expensive and, once you're there, you're hooked in. 

If she left now, Keery would get back only $259,000 of her original $370,000 payment. Meanwhile, units in her village now cost from about $485,000 to $1m. And retirement village units tend to cost between two-thirds and three-quarters of the average price of surrounding homes. 

'There would not be a hope that you could buy anything – even a small apartment in another village. I would have to board or rent. You are pretty stuck, really, unless you've got money.'

Nonetheless, if she could rewind time, she would still move into a village. She has great friends and helps with choir and bingo and a bush care group. But she'd take more time over the decision.

Churton advises people should only consider retirement villages for their last move, as the business model makes it hard to re-enter the property market.

Transparency around transfer costs – whether it's from independent villas to serviced apartments in the same village, or into rest home care – is one of the CFFC's key concerns, he says.

About 70 per cent of retirement villages have care homes on site, and people often move into villages in the hope of an easy transition to care. But if no standard rooms are available when a resident's partner needs to move quickly, they can find themselves paying $70 a day for a premium room, as well as the fixed village costs.

'That's $25,000 a year which has to come from somewhere … These are the cost situations we want to see better disclosed at the beginning of a retirement village proposition,' Churton says.

The CFFC will report to government on the issue by July.

REPAIR, REPLACE, REFURBISH

Philip Ward moved into his retirement village in Taradale, Napier, in September 2011. His wife was 15 years older and they'd grown tired of employing gardeners and house painters. Sadly, his wife died three weeks before they were due to move in. 

He hoped he was 'giving over all the fights and hassles and worries to whoever owns the village'. But when he pointed out that the carpet in his unit was threadbare and probably original to the 1990s build, Ward found himself in dispute with the village owner, Heritage Lifecare.

They eventually offered him a new carpet, but said he'd have to pay to empty his home so they could put it in. At 81, with wheezing emphysema, he doesn't think that's fair.

'You are still fighting down battles. And the older you get, the harder it gets.'

He investigated moving, but his village friends keep him there. Coming from an accounting background, he keeps an eye on the finances. When he moved in, the deferred management fee the village retains when you move out was 20 per cent. Now it's 27 per cent. And the resident no longer shares the capital gain on resale.

'I wouldn't have moved under those terms,' he says. He advises would-be residents to read and reread their village agreements and the industry code of practice, and talk to residents on their own.

Stephen Murray, Heritage Lifecare general manager of marketing and villages, wouldn't comment on Ward's case, as they were in a dispute process. He could not comment on the management fee increases, as Heritage Life took over only in 2017.

Churton says that, while many people are happy to accept a weekly fee and the loss of capital gain, refurbishment and repair fishhooks can come as nasty surprises.

Village operators are no longer able to charge for wear and tear. But he still encounters older agreements with woolly refurbishment clauses, where families of former residents find themselves liable for up to $70,000 in refurbishment costs. However, often in those cases the capital gain from the resale will be shared.

If any refurbishment clause is unclear, he advises stalling the sale to get clarification of exactly how much refurbishment could cost.

Another potential pitfall is who pays to replace things such as fridges or washing machines. Some operators make residents pay if appliances break down or need replacing, but they don't get to keep them when they leave.

THE DETAILS:  A SNAPSHOT

Mountain View, New Plymouth (Summerset): Deferred management fee of 5 per cent on entry, plus 5 per cent per year, capped at 25 per cent. Weekly fees can increase annually, up to the percentage increase of superannuation. Weekly fees stop as soon as resident vacates. No interest paid to resident if unit takes longer than six months to sell.

Parkwood, Kāpiti Coast (independent, trust-run): Non-refundable $35,000 entry fee for villas. Insurance and internal maintenance not included. Weekly fee can change and continues to be charged until a replacement resident is found (unless the resident has moved to the onsite rest home). On leaving, resident gets the new value of the unit, minus 20 per cent (one of few villages that shares capital gain).

Mary Doyle, Hawke's Bay (Arvida): Deferred management fee of 7.5 per cent a year, capped at 30 per cent. Weekly fees are fixed for life and stop as soon as resident moves out. Interest paid to resident if unit takes longer than six months to sell. 

Coastal Villas, Paraparaumu (Metlifecare): Deferred management fee of 10 per cent a year, capped at 30 per cent. Weekly fees are fixed for life and stop as soon as resident moves out. Interest paid to resident if unit takes longer than nine months to sell.

Charles Upham, Christchurch (Ryman): Deferred management fee of 4 per cent a year capped at 20 per cent. Weekly fees are fixed for life and stop as soon as resident moves out. Interest paid to resident if unit takes longer than six months to sell. 

St Andrews, Waikato (BUPA): Deferred management fee of 10 per cent per year for two people, capped at 30 per cent. Weekly fees can be increased annually, up to the superannuation increase level, and fees continue until unit is resold, up to six months. 

RETIREMENT VILLAGE TIPS

1. Take your time in deciding whether retirement village living is for you.

2. Really go over everything with your lawyer and in particular, make sure you understand the financial implications. This is particularly important if you are moving into a village that has a continuum of care, as charges will vary depending on the services you receive and how you transition from your unit. An added complication is when you are moving with a partner who may eventually need a different level of care from you.

3. If the salesperson says anything that varies from the paperwork you have, get it in writing

4. Understand before you sign on the dotted line what you're liable for. Ask hypotheticals. For example, if the heat pump dies six months after you move in, whose responsibility is that?  How is the replacement arranged? What say does the resident have in what's put in as a replacement?

5. Ask the salesperson and/or the village manager to take you through how the complaint process works.

6. Get to know the village's statutory supervisor

7. Don't be afraid to make a complaint.

8. Don't be nervous about asking for a neutral, independent, third-party to come in and help you and the operator (or the other resident) understand what's happening and how you both want to see it resolved. The earlier these things are dealt with, the better the relationship in the future and the less toll it takes.

Source - Mediator Jennifer Mahony