Govt review could hurt villages already helping residents profit.
A move to reform the retirement village industry and make buying a home in one fairer for residents could end up disadvantaging the handful of Kiwi companies already giving their residents a better deal.
The Ministry of Housing and Urban Development (HUD) is undertaking a review of the Retirement Villages Act 2003, looking at ways of improving support and achieving fairness for consumers.
While this has been widely welcomed, it doesn’t take into account the fact that a small number of retirement village operators already run their businesses along very different lines to the major companies, says Adam Yates, chief executive of Karaka Pines Villages.
His company – which has seven villages in Auckland, Hamilton, Rotorua, Tauranga, Waihi Beach and Christchurch – is one of the few in New Zealand allowing residents to keep the capital gains their unit makes when they sell it. Most residents in retirement villages get back only what they paid for their home in the first place, minus a fee. Retirement village operators mostly keep the money the sale of the unit makes above the initial price.
Yates says some of the proposals for change to the whole industry, raised in an HUD discussion paper, don’t consider the way his company runs their model, and could negatively affect their residents. He wants their way of doing things to be recognised and considered when it comes to any changes to legislation.
“Because we do things differently, it is not a case of one size fits all,” he points out. For example, one suggestion put forward in the paper is that operators should not be allowed to charge fees for services like maintenance of the village once residents move out, and before the unit is on-sold, because they are no longer there to reap the benefits.
“That’s a good idea for some villages, but it disadvantages us,” Yates says – because, if the property takes quite a while to sell and the owner is no longer paying fees because they’ve departed, costs like rates and insurance on that property still have to be met somehow, and this would put extra financial burden on everyone else living in the village.
While larger operators can afford to cover the shortfall because they’ll be getting the capital gains when the unit is sold, it would make things tougher for businesses like Karaka Pines Villages.
“In our model, the outgoing resident, and not the operator, is in full control of the re-sale process. If they set the price too high and the process is prolonged, and they’re not paying fees, that puts what we consider to be an unacceptable financial burden on the remaining residents.”
Other potential issues include a proposal to introduce a guaranteed time frame for buy-backs by operators. This could put small, independent operators who let residents keep the capital gains at risk of insolvency if units don’t sell within a certain time.
Yates says while applying for exemptions to rules that could disadvantage companies like his could be an option, it’s not guaranteed that they would be granted and it would mean a lot of extra red tape.
“We hope we don’t have to apply for exemptions if this goes forward. We’re hoping that the Ministry of Housing and Urban Development will look at what we are doing already to make things fairer for our residents and use that as their base. We think it would be better if it was a case of, if you’re doing a good thing already, then carry on. If not, then you must follow rules that make it fairer for everyone.”
Treating people fairly has been Karaka Pines Villages’ ethos from the beginning. Yates set up the company in 2010 after 25 years of running retirement villages for an operator who followed the standard model of keeping the capital gains once residents either moved out or passed away.
“I thought it wasn’t fair that under the orthodox way of doing things, the owners didn’t get to keep the money their home had made in the years that they had lived there. I was seeing cases of people who wanted to move, such as to be closer to family who were in another part of the country or to go to a rest home if they needed care, but they couldn’t because they wouldn’t get enough money back when they sold their unit in their existing village.
“They were basically trapped, and I felt uncomfortable when I saw that people just couldn’t afford to leave.”
Yates believes that kind of model contributes to a poorer standard of services: “If you are no good at the service you are providing, you should at least provide the opportunity for people to vote with their feet and leave. But if they can’t afford to, then you don’t need to very good at what you do.”
While he’s in business to make money, he says it is possible to do that while still giving people a fair deal – and he gets great pleasure out of seeing residents better off financially because of the way Karaka Pines Village operates.
“We recently had a resident who moved into a rest home after being in one of our villages for several years and when they sold, they got more back in capital gains than they paid for it originally, even after paying for the refurbishment of the unit and the termination/facilities fees we charge when they leave. That can make a big difference to someone’s life.”
For more information: Karakapines.co.nz