Retirement village operators

[artemis]

A case of being careful what you wish for: if all the changes being demanded (or even some of them) get pushed through then the supply of retirement units will reduce and the cost of the remaining supply will go up. Economics 101.

Some NZ operators already moving into Australia.

[percy]

I have at times owned shares in the retirement sector and done very well with them,but I sold out, as I think it is just plain wrong, that they do not have to pay out 6 months after a resident has died or left their unit.In the article the Munns had to wait a year to be paid out.This is totally unacceptable. As for still charging on going fees I think that is criminal.Off course a village operator is much more interested in selling a new unit,rather than a used unit.
The retirement village model uses residents "right to occupy" up front money ,which is really an interest free loan to build more village.A fantastic ponzi scheme,so they have no right not to settle straight away when a resident dies..

[James108]

Percy I agree, it appears that some village operators are having their cake and eating it too. They take the reward of owning the unit (i.e. the capital gains) but then put some of the risk back on to the owner of the ORA in the case the unit doesn't sell. If village operators want to get the rewards of owning the unit they should take more of the risk. As a shareholder of both Summerset and Oceania I would support a more prompt payments and cessation of fees upon an occupier leaving.

I don't think it should be legislated that capital gains are shared though it would undermine the very successful model (successful for both residents and village owners) of the NZ retirement village industry.

[percy]

Percy I agree, it appears that some village operators are having their cake and eating it too. They take the reward of owning the unit (i.e. the capital gains) but then put some of the risk back on to the owner of the ORA in the case the unit doesn't sell. If village operators want to get the rewards of owning the unit they should take more of the risk. As a shareholder of both Summerset and Oceania I would support a more prompt payments and cessation of fees upon an occupier leaving.

I don't think it should be legislated that capital gains are shared though it would undermine the very successful model (successful for both residents and village owners) of the NZ retirement village industry.

We are in total agreement.

[Waltzing]

Capital Gains sharing surely is coming to a village near you.

[Rawz]

Do retirement village operators make outrageous profits? So much so that they need to be regulated?

[winner69]

Do retirement village operators make outrageous profits? So much so that they need to be regulated?

Pretty low returns on capital invested

[Waltzing]

Its Tax , Tax , Tax till the cows come home.. and more taxes if they can find them.. They cant wait to tax those huge profits and its a vote winner.

[Snoopy]

Capital Gains sharing surely is coming to a village near you.

The is a least one retirement village that I know of that does share the capital gain. This is run under a trust rather than a commercial model though, but does encompass independent living and care suites, although not secure dementia units. This is done by taking the capital retention component on the 'right to occupy' a unit as 15% of the 'unit sale price', not the 'unit purchase price'. This particular village has reached a 'steady state' in the sense that the number of residents is not planned to increase. However, there are some 'sealing issues' with the roof design of the villas that have lead to 'leaky building' issues, So there are some long term capital commitments needed, beyond normal 'wear and tear', to keep the village up to scratch.

To balance the funding there is a 'facility fee' upon entering the village. Since I have been associated with this place, over a period of some 20 years, I have watched the completion of the wider village facilities to the blueprint of the founder. However the facility fee is set to continue and has risen from $10k to $35k over the 20 years. This increase is simply to cover village operating costs and is increasingly used to 'subsidise' the care side of the village.

Such a model is highly beneficial to the occupiers, or at least it has been up to now. However it does rely on booming property prices to keep the village balance sheet looking good. With much lower capital gains into the future, and perhaps even periods of capital loss, I can foresee the non-refunable 'facility fee' growing dramatically. In the near future I wouldn't be surprised to see a $50k non-refundable 'facility fee', a defacto 'entrance fee' being the norm in village that share capital gains (and gulp capital losses) going forwards.

SNOOPY

[RTM]

RNZ This morning.
https://www.rnz.co.nz/audio/player?audio_id=2018798959

Quite pleased I halved my holdings in this sector a short while ago. Some headwinds / uncertainty ahead.
Still 4.6% of my portfolio overall ...so I am paying attention.