Aged-care industry ‘at risk’
Independent retirement village developer and co-founder of Ryman Healthcare John Ryder says a recommendation from the Retirement Commission will put the aged-care industry ‘‘at serious risk of crashing’’.
Ryder, who co-founded Ryman Healthcare with Kevin Hickman, and was its joint chief executive for 18 years, now develops retirement villages through Qestral Corporation. His submission to the Retirement Commission’s white paper, which recommends some changes in the industry, paints a dire picture of the consequences of the recommendations.
State intervention in the nongovernment-subsidised and freemarket business model, which surveys had shown residents were happy with, could require operators to carry ‘‘massive reserves’’ and could eventually push more residents into public hospital beds, his submission said.
The commission’s white paper is proposing that village operators should have to repay the original sum paid by residents to occupy a unit when they die or go into care within a guaranteed timeframe.
Residents and their families have complained the repayment can take more than 12 months at times and operators have use of that money.
Ryder warns of grave consequences of a guaranteed payback time.
‘‘A guaranteed payback situation for retirement village operators, as recommended by the commission, would not allow village owners to participate in the normal ebb and flow of the real estate market, and
will put the aged-care industry (and their residents) at serious risk of crashing,’’ Ryder’s submissions to the white paper said.
‘‘It would be a momentous event. Operators would be bankrupted. Residents with a financial interest in villages would be highly compromised.’’
He said the upfront lump sum paid by residents to occupy a unit was an interest-free loan. Residents were akin to tenants and their agreements to occupy like a lease which came with a range of facilities and services at the village. The loans helped fund the range of buildings and services.
The commission’s recommendations on ‘‘capital gains’’ were seeking to cherry-pick an aspect of the integrated accommodation business when there was a wide range of services and facilities provided. The capital gain refers to the typically higher cost of a licence to occupy a unit by a new tenant than that paid by the exiting tenant. Ryder says the payment is a loan to the operator.
The commission is suggesting the gain should be shared between the operator and the exiting tenant or his or her estate.
The commission’s report misinterpreted the transaction as if it was a ‘‘sale’’, when there was no realised sale of a villa, or an ORA (Occupational Rights Agreement), there was just tenure of the unit, Ryder’s submission said.
The report ignored all the associated facilities and village services and the ability of the tenant to move to higher care accommodation in the village, it ignored the comprehensive staffing arrangements, and the owner’s responsibility to continue services for the next tenant.
If there was a profitable business model in which operators shared the ‘‘capital gains’’ with residents as well as providing all the facilities and taking sole responsibility for operating the village for an unlimited time it would have developed but had not, suggesting it was untenable. ‘‘The system works. It is attractive to elderly people,’’ the submission said.
The big five corporate retirement village owners had $8.1 billion of these loans from residents. They also had debt to banks of $3.1b.
Under the Retirement Villages Act 2003, occupation loans owing to residents had priority over any other debt, including loans by banks.
If residents’ loans had to be paid back in less than 12 months, the loans would be classed as ‘‘current liabilities’’ and banks would rethink whether they were still prepared to be second in line to residents, who all could demand repayments within six months, the submission said. That would require operators to have ‘‘massive reserves’’ on hand to cover that.
‘‘It has the potential to financially destabilise the aged-care industry, and at least stop future development,’’ the submission said.