Submission cover sheet
- Name of organisation or individual making this submission
- Authorised delegate/contact person
Questions on possible options
- Is the description of the ‘Sydney Metropolitan Area’ appropriate? If not, why not, and what areas should be included or excluded?
Not appropriate, real estate outside of the Sydney basin requires a longer period of time to sell. Boundaries for Sydney metro- South Engadine East Penrith North Hornsby. We have future residents trying to sell in Kurrajong which is taking 8months plus
- Are the proposals for appointing a valuer, to determine the value of the property, necessary and appropriate?
Yes, the valuer must be a experienced in the retirement sector, which is a problem as the sector has limited professionals. Many of these professionals are currently engaged by operators, creating an issue for all parties. Residential real estate valuers struggle to understand the unique features of the sector and do not understand contracts. The general rule is that retirement village units sell under the surrounding residential prices, as future residents want to obtain some equity ( cash ) to fund retirement living once they have purchased a lease in a village.
- Where residents wish to sell their residence on their own terms, under what circumstances should they be able to opt in or opt out of the exit entitlement provision?
Once the resident opts to sell the operator is not responsible for a buyback. The reason is that once real estate agent fails to sell the unit the potential buyers become aware of the time the unit has been on the market. Hence, making the resale process much more complex and costly to move. Creating considerable cost for the operator, who was not responsible for the failure to sell the unit in the first place.
- What issues should the Tribunal take into account when considering whether or not the operator has done everything in their power to enable the sale of a premises?
Ability to have timely probate. Sometimes joint powers of attorneys do not agree on a sales price. Realistic resale price set by families. The current cycle of the property market, a operator has no control of a slow real estate market. What if we have a recession? How does an operator sell units in a recession or economic downturn. The retirement industry relies on future residents being able to sell the family home at the best price, during a downturn these potential customers take considerable to time to reset the sales price of the family home to meet the market. This adjustment can take 6-12 months.
- Are there any additional circumstances the Tribunal should be able to take into account when considering a hardship application from an operator?
A operator has limited ability to influence the property/investment market. How can a retirement operator provide refunds on vacant units when the market is subdued. No other sector of the accommodation industry operates outside a property cycles, how can the RL be excluded from the overall market. The critical issue is that once the hardship application is lodged it will become a public knowledge and the operator will face a backlash from prospective buyers. In addition, this could be deemed as Insolvent Trading.
- Are there any other factors that could affect the setting of a ‘trigger point’?
Definition of a vacant unit, needs to be clarified. As the process requires, the unit to be vacant of all furniture, keys returned and a notice of vacancy. Then we need to establish resales price on the current condition of the unit. Then the level of refurbishment. Which then needs the availability of trades people and supplies. Once this process is completed the unit is ready to market. Many of these steps are out of the control of the operator, some families take many months to clear our deceased family units, due to them living interstate etc. Resales price and explaining to the families of outgoing residents that the retirement act in NSW has many safeguards for potential residents. IE the deposit is fully refundable, the new resident can cancel the contract even after settling. This process also takes time as often many family members need separate meetings to explain all of the details. A buyback period should commence when all of the above is completed. Buyback period is suggested at being 12 months for a sustainable retirement industry.
- Would any of the current provisions in Victoria and South Australia as set out in Appendix A (in the discussion paper), be of benefit to NSW residents of retirement villages?
Relocation to aged care as in Victoria is a viable solution to residents in NSW needing care. Operators could fund DAPs and then gain a refund when the unit sells.
- Can you think of any other benefits or costs of this proposal? What are they?
Costs- the proposed buyback will impact the valuation of resident contracts, Which will reduce the value of the retirement village, creating a serious problem in gaining additional lines of credit from banks. And in some cases breach our banking covenants due to LVR requirements. If a line of credit is established for buybacks the banks will require 100% of the resale proceeds. Creating no free cash for the operator to fund- capital works, fund resident budget operating deficit, or general works around the village.
- As with residents with a non-registered interest, should the ‘trigger’ to commence the 42-day period begin when the resident permanently vacates the premises?
Non registered contracts are generally for church and charitable operators, who are provided with tax advantages over private operators. You cannot provide a similar period of time for both registered and non registered, as they are not commercially the same. Private operators may have to reduce the residents operating budget as the village will not have the same level of income, impacting residents.
- Should one or both of the proposals be ‘grandfathered’? If not, please provide your reasons.
No, the funding of both is not provided for in current lines of credit provided to by operators. The banks may not be able to provide additional credit as the operating model and value of the villages will decrease. As the overall value, of resident contracts are worth less. The valuation of a village largely based on the value of its resident contracts and current future capital works. The access to cash, to pay these costs, places considerable strain on private retirement operators with no parent company or access to additional credit.
- Please provide any further comments on the reforms.
Over 30% of the sector is owned and operated by private operators which operate on the cash from a sale of a unit to fund the refund to an outgoing resident. The sale process is the only source of income by an operator. Running the village, an operator is prohibited from making a profit. A six month buy back will make most private operators unsustainable, then this will impact residents as the operators will cease. WHICH WILL IMPACT THE RESALE VALUE OF ALL RESIDENTS IN A VILLAGE. No bank will fund a business that has to borrow funds for each transaction, the sector will not be attractive to additional investment. A 12 month compulsory buyback provides certainty for residents and operators. This time frame can be funded with cash flow over a 12 month period. Anytime frame under 12 months does not allow for cycles in property, economic slow down. Many private operators are in country areas, which could impact future jobs and investment in rural towns. Baldwin Living is family owned business operating for over 40 years, our residents love living in our villages. As we are hands on making us accessible to residents, by removing private operators from the sector. The industry will be in the hands of large public listed companies and complex church and charitables, giving future residents limited choice or options to live in smaller family focused villages.