‘I just don’t know why I did it’
Elders losing out by moving to retirement villages The laws around retirement villages are set for review but, as Heidi Bendikson reports, any changes may be too late for some.
Seated in her living room in a Bay of Plenty retirement village, Patricia Price only has positive things to say about the house. It may be single glazed – a relic from 2003 when she moved into the village – but it has served her well.
When her husband died seven years ago, (‘‘69 years to the day since we became friends. I thought he was pretty clever’’), the house was spacious enough to fit everyone after his funeral.
Price still misses her husband everyday, but the support she received from the village community eased her grief.
Others feel the same. Price reads out a thank-you note included in the village newsletter from a recently widowed resident. ‘‘If you are bereaved, this is the place to be.’’
Price and her husband were not always fond of retirement villages. As a tax consultant, Price visited clients at villages. After her husband retired, he’d tag along and say, ‘Oh no, I don’t want to live here’. But he had health issues, their Auckland house was large and their children were ‘‘all over the place’’. ‘‘And I would say to Alastair, ‘The only way I can retire from this business is to actually leave town’.’’
Omokoroa Country Estate gave them that opportunity. In a perfect world, she will never leave.
But circumstances change. There are no serviced apartments available in the village and, after a fall when Price thought about downsizing, it became clear she could not afford to move.
The traditional occupation rights agreement (ORA) model used by most retirement villages does not give residents a share in capital gains when they exit. And a deferred management fee of 20-30% is deducted from the entry fee, so the resident receives back less than what they originally paid.
Many operators do not pay out residents (or their estate) until the unit has been refurbished and onsold – a process which can take more than a year – and many continue charging regular operational fees until then, despite the unit being empty.
Some village operators argue the arrangement provides financial protection and protects residents from capital losses. But Sunday News has seen some
ORAs which require residents to share any capital loss if prices decrease, but not the capital gain.
When Price started looking at serviced apartments in other villages, they were around $400,000. She and her husband paid $303,000 for her villa 19 years ago. Once the deferred management fee, refurbishment and other fees are deducted, she would be left with $207,300 on exit. Not enough for a serviced apartment. Not enough for anything.
Meanwhile, the village will profit if she sells, with homes like hers selling for $900,000-$1m.
Price says she had the option to pay a further 10% when she signed the ORA, which would have given her a share in the capital gains. ‘‘Our financial advisor... said we would be better off investing that money. Well, I didn’t know we were going to be here for 19 years.’’
The Retirement Village
Residents Association issued a petition to Parliament last year calling for an urgent review of the Retirement Villages Act and code of practice. It called for villages which do not give residents a share in capital gains from a sale to return the capital sum within 28 days.
The Retirement Commission has long been calling for review of the legislation. Its report described operators’ exit payment arrangement without a share in capital gains as ‘‘interest-free loans’’ and ‘‘a wealth transfer that increases the longer the ‘loan’ is retained’’.
The association’s Bay of Plenty formal complaint co-ordinator, Roger Goodman, does not mince words.
‘‘You are dealing, in the main, with elderly, widowed women in their 80s, who don’t have any power or don’t perceive that they have any power. To me, pardon the use of the term, it is a form of elder abuse that these people can’t get a fair deal.’’
An Omokoroa Country Estate spokesperson said it was committed to delivering ‘‘safety, security, peace of mind and certainty of cost’’.
The majority of their residents were ‘‘very happy with their commercial terms they have agreed to’’ and they were working to address ‘‘some of the older industry-wide practices raised by residents’’, including (from February) ending the operational fee from the date the resident hands over their keys.
John Collyns, executive director of the Retirement Villages Association, says that when serviced villas and care units are available in the same village, operators usually transfer the payment across and if a resident needs to go to another village, operators can work with residents to get a loan from the Ministry of Social Development against their capital sum.
‘‘My point, I guess, is that noone should worry about moving to care and not being able to afford it.’’
But he acknowledges situations such as Price’s can occur, adding that operators are motivated to ensure residents have made the right choice.
‘‘They want to be very, very certain that the resident, when they move in, has made the right choice. Because if they made the wrong choice, they are going to be trapped.’’
Collyns adds that residents are also required to obtain legal advice before signing the ORA.
However Tristan Fluerty, Te Ara Ahunga Ora Retirement Commission’s retirement villages specialist, says a recent survey found many residents were already ‘‘psychologically committed’’ when they got legal advice. Recent submissions to the Commission included concerns about some lawyers’ knowledge of how ORAs and the code of practice applied in practice.
As Retirement Village Residents Association president Brian Peat notes: ‘‘Yes, we all signed the ORA agreement, that is not an issue. When we go into the villages, as you appreciate, we are all in the elderly bracket. All we want is a very nice life and we don’t want to be worried with various things. We never go into it on the basis, what is the end result? We go in on the basis that it is a one-stop-shop and we leave when we pass on.’’
That is how Margaretha Graham-Lamers, 75, feels after spending close to $2 million on her river-view Arvida retirement villa in Tauranga nearly two years ago. ‘‘I haven’t made many mistakes in my life but I feel that this was the biggest mistake ever,’’ she says.
When her husband was alive, Graham-Lamers says they ruled out ever going into a retirement village. ‘‘But things changed. He died.’’
She wishes she had listened to her children, who were against the move, but she had sold her large Coatesville property and was staying with her daughter. Her daughter was ‘‘amazing’’, but Graham-Lamers wanted to feel settled.
‘‘I don’t know why I kept thinking I needed to be here. I think it was the fact there was nothing else... Anything that was for sale, unless you were Johnnyon-the-spot and wanted to buy it without due diligence and all of the rest of it, you just missed out.’’
Graham-Lamers’ villa was a new-build and, among the usual snags when she moved in, was a substantial leak which caused the skirting boards to rot and the electricity to blow out.
She praised village management who quickly arranged repairs and paused her monthly operational fees, but it
‘To me, pardon the use of the term, it is a form of elder abuse that these people can’t get a fair deal.’ ROGER GOODMAN, RETIREMENT VILLAGE RESIDENTS ASSOCIATION BAY OF PLENTY FORMAL COMPLAINT CO-ORDINATOR
put a strain on Graham-Lamers, who on one day had 26 tradespeople through the house.
She considered leaving – her 90 day money-back guarantee still applied – as the stress over repairs and her concerns over the financial loss set in but she had already delayed a knee operation.
‘‘Once I made that first mistake, I kind of tried to make it better. I tried to think, well Margaretha, you bought it, you sold your furniture, you got someone organising to make it home.
‘‘And the other thing is the money,’’ she says, noting not only the deferred management fee (7.5% per year up to a maximum of 30%), but also the $60,000 for upgraded fixtures from her ‘‘wishlist’’, which she will not be recompensed for.
She attends to her garden but is reluctant to invest in it, knowing she will not get any return.
Graham-Lamers does appreciate the security the village provides and not feeling a burden on her children. ‘‘It is a view to die for and I am totally private but, at the time, I could have bought any house in the village for half the price. Honestly, I just don’t know why I did it because I would have been better off giving my grandkids a million dollars to help them into a house. But you do what you do.’’
Arvida general manager sales, Tristan Saunders, said it ‘‘prides themselves on a highquality build standard’’ for new developments and refurbishments. ‘‘While our 90-day period has only been used a couple of times over the years, we believe it does provide peace of mind to our residents if they were to change their mind and wish to leave.’’
He says they collaborate with residents on their requests and variations after working through requests and explaining what is non-refundable.
‘‘When someone does move out, it’s important to remember that not every new resident would like the changes made by the previous resident, so the additions may not always add value to the property.’’
Housing Minister Dr Megan Woods in December approved the proposed scope for a review of the Retirement Villages Act including the treatment of deferred management fees and losses. She expects a discussion document to be released in September.
‘‘Moving into a retirement village is a big decision, with significant financial implications. So it’s essential consumer protections for residents and prospective residents are adequate and working as intended,’’ she said. Meanwhile, the RVA has worked with members on voluntary changes, including ending the operator fee once residents vacate and paying interest on residents’ capital sum if not repaid within nine months from termination.
John Collyns says operators do not want the repayment period set in legislation because that would require them to retain a line of credit, leading to additional costs.
Their proposed changes are silent on capital gains. Some newer, for-profit villages, such as Freedom Villages and Fletcher Building’s Vivid, have introduced ORAs which provide the resident a share in any capital gain.
Fluerty, from the Retirement Commission, says over the next 20 years there will be a 100% increase in people renting aged 65 and over.
Ryman had seen a decrease in profits, citing property prices, but Arvida announced an 18% net profit increase in November.
Core Logic head of research, Nick Goodall, says retirement villages’ ORA model makes it difficult to measure the market, but, given the ageing population, he would not be surprised if values in the retirement sector held up better than the rest of the market.
‘‘Especially as ‘buyers’ of these properties are likely to have equity built up from other property ownership and are therefore less affected by the affordability pressures faced by other owners/buyers due to increasing interest rates.’’
Price is stoic. The idea of a serviced apartment is ‘‘dead in the water’’.
But she is adamant the current model needs to change and that any changes should be retrospective. ‘‘There are so many bad stories these days that something has to be done.’’
‘I don’t know why I kept thinking I needed to be here. I think it was the fact there was nothing else...’ MARGARETHA GRAHAM-LAMERS, LEFT