Day: August 16, 2018

Aveo is releasing two new contracts next month, adding to their standard contract which they call the Aveo Way.

This standard contract is a 35% DMF over three years. You can depart the village within six months and get your money back. They guarantee to buyback the unit within six months if not sold. You don’t share in the capital gain, but you don’t pay any marketing costs or refurbishment costs.

It has been operating for three years.

‘Aveo Essentials’ is perhaps designed to address media criticism of the 35% over three years DMF.

It will now offer 35% over five years but the money back guarantee is only for three months and the buyback guarantee takes place after 12 months.

Most of us appreciate that once a person is into a village they are unlikely to move out within three or six months of course.

Aveo has not indicated whether this contract will have a higher entry price to their standard contract to compensate for the five-year DMF.

‘Aveo Certainty’ is all about a care path for the incoming resident. It’s a three year/35% DMF with a six-month money back guarantee and buyback guarantee.

And it adds that you can transfer to any Freedom unit (Aveo’s private aged care program delivered in a service department) or an Aveo aged care facility with no extra DMF. Your net equity is treated as a RAD.

They will charge $2,000 a year ‘membership’ fee for this privilege.

This contract will only be available at selected QLD locations.

Most not-for-profit operators with a co-located facility would say all their contracts are like ‘Aveo Certainty’ (without a membership).

Rymans brought this model over from New Zealand four years ago very successfully.

These contracts do not reflect the level of choice that say the new Lendlease options provide customers. But Lendlease points out that while they offer significant choice, around 85% of customers still choose the traditional DMF model, reinforcing the view that village customers would prefer to enjoy the village now at a lower price and pay for it later when they are no longer with us.

Is this your experience?

The chart above is interesting.

It shows the average weekly booked appointments with Aveo, the actual appointments where customers are seen at the village and the actual sales made.

Before the Four Corners program Aveo was booking just over 170 appointments a week and seeing about 135 people, then making 22 sales. This means 16% of people who came to the village purchased.

12 months later they book 150 appointments a week and see 105 people at the village and achieve 21 sales, or 20% of people who came to the village.

Slightly fewer people but more committed.

What is more, Aveo increased their prices by an average of 12% on resale stock over the 12 months. They have committed to increasing village prices in line with residential prices.

This is another interesting point. Is demand knocked today by residential housing prices? They were in the GFC; village sales stopped when housing sales and prices dropped overnight. This also happened in WA three years ago and hasn’t recovered.

But check out the declining green line in the chart – this is the option clearance rate across Australia over the past 12 months. It has dropped from 72% to 54%, with far fewer properties going to auction.

Aveo CEO Geoff Grady told analysts yesterday that retirement villages are a ‘needs’ purchase and sales are isolated from the property downturn.

Separately they have argued that with the sector building villages at less than half the rate required to maintain penetration rate of 8% of all people 75+ living in villages, demand is naturally strong.

Our research has always supported that villages are a needs purchase. People don’t want to move to a retirement village, they need to because of events in their life

This means demand far exceeds supply. Do you agree? How are your sales conversion rates?