HGH - Heartland Group Holdings

[kiwico]

Turns out HBL do not fund reverse equity loans on retirement village units.
I think they're missing a real opportunity here but that's their decision.

I think it's understandable. My understanding of a REM is that the interest builds up and up given there is no repayment but the maximum that can be taken is the value of the home. The home value potentially increasing allows for a margin. [I note that the HBL version of this may differ.]

As we've seen from other posters the resident of a retirement village does not have access to the gains in value of a unit. Instead they will be returned circa 70% of their original cost of the unit. There is also all the complications of the Retirement Villages Code of Practice 2008 and the additional protections for residents introduced in 2013.

For example, will they allow REMs on body corporate units or company share properties? I would image not but I see these as more likely to be REM appropriate than a retirement unit subject to the Retirement Villages Code of Practice.

[Beagle]

Just unpacking this a bit. Suppose Joe Bloggs paid $1m for an upmarket license to occupy and on average its expected Joe will live there for 10 years based on 78 year average age of entry and normal life expectancy tables.
Company XYZ guarantees that there's no capital loss so you're looking at a guaranteed residual value of not less than $700K.
Joe is asset rich but cash poor and with ultra low interest rates struggles to fund the $130 per week occupancy fee.
Why is annual outgoings of $6,760 not a bankable proposition in these circumstances ? Total drawdown is $67,600 and even with compound interest clicking away every month the eventual loan balance is going to be a very low ratio relative to the $700K. (According to my system $130 week compounded for ten years at 10% gives a total loan outstanding in ten years of just under $113K, very comfortably covered by a $700K realization of license to occupy sale.)

Seeing as reverse equity funders won't fund this at their normal expensive margin, maybe there's an opportunity for the retirement company to internally fund the capitalization of weekly fees ? (at a commercial interest rate of course) especially as they're the ones with the legal title to the land and eventually in receipt of the resale proceeds ? Nice little profitable sideline ? Fact is some retirees are really struggling with ultra low interest rates on their term deposit money and would welcome the lifestyle improvement that would come from not having to meet weekly village fees.

Some people have no kids and others have ratbag kids and some people couldn't care less that their kids wouldn't inherit as much if opex was capitalized. An opportunity here for a retirement company with the balance sheet strength to fund it themselves ? or in association with the companies own bankers to create a market niche. HBL are missing a real opportunity here, in my opinion.

[Jay]

Agree Mr Beagle, the company themselves would be able to do this more easily, but would it be tricky for another financial instituton to do this as "I" do not own the property, therefore cannot Mortgage it so to speak

[t.rexjr]

Agree Mr Beagle, the company themselves would be able to do this more easily, but would it be tricky for another financial instituton to do this as "I" do not own the property, therefore cannot Mortgage it so to speak

I have a mortgage over a house I do not own. The house is the security. Difference being I guess is that there are no additional borrowings against the house.

[kiwico]

Re REMs on retirement villages there is the added issue should the unit be damaged beyond repair. In such a scenario I understand the resident is returned their entire original capital sum unless the village operator is able to rehouse the resident in the same or another owned village to the resident's satisfaction. This was an outcome from the revision of the code of practice changes in 2013 following the Canterbury earthquakes.

If there was a REM on the unit the resident may no longer have enough funds for the capital sum required for a unit in another village. [Sorry to have such a glass half empty approach on this.]

[kiwico]

More info about the Retirement Villages Code of Practice 2008 is available here. [solely for the purpose of looking at REMs potentially offered by HBL - not trying to contaminate the HBL thread with info about SUM other companies...]

[BlackPeter]

I have a mortgage over a house I do not own. The house is the security. Difference being I guess is that there are no additional borrowings against the house.

Yes, but the title holder for your mortgaged house had to agree with this mortgage.

In the case of retirement villas - the title is hold by the retirement village provider and they are unlikely to have a separate title for each unit. This means any mortgage would be against the balance sheet of the retirement village. Sounds impractical and very messy on a per unit basis - and why would they want to do that anyway?

However - I do like the proposal of our new-born "Beagle". The retirement village providers could easily provide this "loan" by themselves (and deduct the repayment plus interest from any otherwise refundable capital return at the end of the contract) - or they could work out a deal with HBL to secure this loan facility (not per unit, but as a total of the complete facility) against the balance sheet of the retirement village. Obviously - the conditions would need to benefit both SUM (in this case), HBL and the (asset rich but cash stripped) retiree, but I think this should be possible.

[Jay]

Yes, but the title holder for your mortgaged house had to agree with this mortgage.

In the case of retirement villas - the title is hold by the retirement village provider and they are unlikely to have a separate title for each unit. This means any mortgage would be against the balance sheet of the retirement village. Sounds impractical and very messy on a per unit basis - and why would they want to do that anyway? .

t.rexjr, I too have a mortgage over a property I do not own, but as BP says the owner would have to agree and yes BP it would get messy

However - I do like the proposal of our new-born "Beagle". The retirement village providers could easily provide this "loan" by themselves (and deduct the repayment plus interest from any otherwise refundable capital return at the end of the contract) - or they could work out a deal with HBL to secure this loan facility (not per unit, but as a total of the complete facility) against the balance sheet of the retirement village. Obviously - the conditions would need to benefit both SUM (in this case), HBL and the (asset rich but cash stripped) retiree, but I think this should be possible.

Like the proposal by the Beagle as well, while not helping the cashflow immediately, would still be a nice earner. Not sure why Heartland seems to be the only one left holding the baby (REMs), no other larger Bank now offers these, too hard basket for a limited market?? I would think the market may grow over the next 5-10 years, a lot of near retirees with homes worth $1M+ but short of actual cash, as they say you cannot eat your house.

[Beagle]

More info about the Retirement Villages Code of Practice 2008 is available here. [solely for the purpose of looking at REMs potentially offered by HBL - not trying to contaminate the HBL thread with info about SUM other companies...]

"Contaminate" such a strong word...just putting the idea out there for goodness sake.
Thank you for the link but FYI The official reason given for not lending was "Unfortunately we are unable to lend on Retirement villages due to the 2006 Retirement Village Act".
Some companies have the balance sheet strength to look into fund this proposal from their own banking resources while obviously some others don't.

[percy]

t.rexjr, . Not sure why Heartland seems to be the only one left holding the baby (REMs), no other larger Bank now offers these, too hard basket for a limited market?? I would think the market may grow over the next 5-10 years, a lot of near retirees with homes worth $1M+ but short of actual cash, as they say you cannot eat your house.

Another reputable bank offering RELs would certainly help both HBL and the sector.