Debate fires up over retirement village gains

Resale gains on units are a ‘‘significant chunk’’ of retirement village profits, financial analysts say, as debate heats up on whether residents should share in those.

The Retirement Village Residents Association is calling on retirement village owners to share some of these resale gains with residents or their estates when residents pass away or move into care.

Residents of retirement villages have made hundreds of submissions to the Retirement Commission backing its recommendation of a major revamp of retirement village legislation.

Residents pay a cash lump sum to buy a licence to occupy a unit via an occupation rights agreement (ORA) and when they leave or pass away, they or their estates get between 70 per cent to 80 per cent of that money back because village owners take 20 per cent to 30 per cent in ‘‘deferred management fees’’ for costs in maintaining the unit.

Then the occupation right is resold to a new resident, usually at a higher price, and the village operator makes a gain on the resale.

The accounts of Ryman Healthcare, the biggest retirement village operator, and of Summerset, a big operator also, show that resale gains are more than 20 per cent.

Craigs Investment Partners analyst Roy Davidson said it was difficult to work out from retirement village company disclosures what proportion of profits was coming from capital gains.

‘‘But it would be a significant chunk,’’ Davidson said.

Retirement village operations were a much more profitable part of the retirement village companies’ earnings than aged care.

Aged care which relied on government subsidies was not very profitable, but it attracted people to the villages because they knew they could move into the care section when needed.

Key parts of the earnings were the deferred management fees and resale gains of ORAs. Resale gains would change year by year depending on what the property market was doing, Davidson said.