When Deputy Premier Roger Cook took on the commerce portfolio last December, and with it the Retirement Village Act reform process, there was a sense that he might bring a fresh approach to retirement village reform.
It was hoped he might bring more balance to the Department of Mining Industry Regulation & Safety’s (DMIRS) proposal that operators pay out a resident where their unit has not been released or sold (buy-back).
Well, the long-awaited Decision Regulatory Impact Statement (DRIS) paper on retirement village reform has arrived and Mr Cook has allowed his department to lead him by the nose.
DMIRS has proposed a mandatory buy-back scheme that requires operators to pay out a resident where their unit has not been released or sold within 12 months.
While the sector was always on board with a buy-back in some form, this proposal is as blunt and lacking in nuance as they come.
No exclusions. No exceptions.
On my calculations, the average village of 100 units will now need to add $4 million in current liabilities to its balance sheet (and find the liquidity to service it).
With the bulk of operators being not-for-profits or small family businesses, it seems almost certain that many will become technically and immediately insolvent when the reforms begin.
Although a transition period is proposed, these reforms will be retrospective, applying to operators who never even conceived of this type of risk when they signed on the bottom line with residents as much as a decade ago.
This is a shocking interference with private contractual relationships and upsets the rule of law that parties are entitled to know the legal consequences of their actions when they accept a contract.
As one investor said to me: “This is a deal-breaker. Why is the government introducing sovereign risk into the sector at the very time when more investment is needed?”
Bewilderingly, the buy-back will apply to strata-titled villages where the houses are owned by the residents themselves.
That is, the operator, whose job it is to run the clubhouse and clean the swimming pool, will be forced to buy (and pay stamp duty on) houses they might never have owned or have any intention of owning.
Even more perplexing is the stated intention that buy-backs apply to residents who have passed away (or more accurately to their children).
The reason why the 5 per cent of our seniors who live in retirement villages (and their children) should be treated preferentially to the 95 per cent who don’t evades me.
A man living in an identical strata-titled unit across the road doesn’t get bought out just because he decides he might like to move.
By the same token, his children don’t get to liquidate his estate any earlier than the market permits just because he has died.
Nevertheless, industry has sought to genuinely engage on this issue and presented several workable models to government, including one based on the existing, tested and sensible NSW buy-back scheme.
Yet it seems the government was less forthcoming with its level of consultation.
I’m told by reliable sources that the DRIS was finalised back in January 2022 (almost immediately after Mr Cook’s appointment) and that any engagement with the reform process was minimal at best.
It is hard not to conclude that the state’s consultation with industry has been tokenistic.
When the market slows (as it will), this reform is going to send some of the small family and not-for-profit operators to the wall, as it has in other states.
The proposed reform is unfair and will further distort a market already burdened by overegged regulation.
It will drive down returns for existing residents as early sales are sought by operators to avoid buy-backs and drive-up pricing for future residents as operators look to build cash reserves to finance them.
Worst of all, the opportunity to leverage the retirement village model in the race to meet housing, public health and ageing policy objectives is now at risk.
Sure, the sector will continue to exist, but it’s unlikely it will ever have the scale to make the social and economic impact it most certainly is capable of.
All this just as we hit the J-curve in rapid population ageing.
The short-sightedness is staggering.
- Amber Crosthwaite is a commercial lawyer specialising in seniors living, aged care and disability
