Month: May 2019

Have you heard that compulsory ‘buybacks’ are coming your way and do you understand them?

In simple terms, regulators across the country are moving towards forcing operators to ‘buy back’ village units that haven’t sold after a reasonable time – irrespective of what is in the contract.

In QLD, VIC and SA, it is now regulated that units be paid out at 18 months if not sold.

The NSW Government is looking hard at introducing buybacks at six months for metro villages and 12 months for regional villages.

The buyback argument seems to pass the ‘pub test’ as being reasonable at first sight, but the impact is turning out very different.

Last week the first buybacks came into effect in QLD (meaning the regulation has been in place for 18 months and now operators are being forced to buy unsold village homes).

On the first day, over $30 million had to be raised by operators to pay out village homes and hundreds more are expected.

In SA, this will start next month.

These states are also taking up the ‘Aged Care Rule’, which you most probably know. It says when a resident moves to an aged care home, the operator will pay the Daily Accommodation payment (DAP) until the home is sold. As a benchmark, this is likely to be around about $50 a day.

There are three things to consider. Will your operator have to use cash they would have used to reinvest in your village to keep it fresh? Most likely ‘yes’.

If a resident lived outside the village, would someone come to their rescue if they had not sold their home after 18 months? ‘No’.

Discussion amongst operators is this will be a major issue soon and the only way out is to sell village homes faster, so they don’t reach 18 months. They will be talking to you to help this sales effort because at the end of the day, village managers create happy residents who generate word of mouth sales.

Last issue we talked about ‘Customer Experience’.

In that discussion is the concept of village managers being leaders. We cover this deeply in our Village Manager Professional Development program but in general terms what does ‘leadership’ mean to you as a village manager?

Leadership means leading. In layman’s language that means getting things done that need to be done to achieve an overall positive outcome.

Delivering services, like good gardening and responsible budgets is not leadership. These are expected services.

Identifying a garden initiative that delivers a better experience or a saving to the budget so that new gardens can be built is leadership.

Here are two real-life examples. A village manager, walking the garden regularly, notices that four or five residents meet for a chat at the post boxes every afternoon and decides to invest in some benches there so that they can sit while they chat.

Another village manager walking the village identifies that a lemon tree planted 25 years ago in a corner was old and not serving any function; they discussed with residents what could be done to bring that location alive.

Neither action was expected by residents, but they demonstrated the village manager was invested in the best interests of the residents.

It wasn’t the money spent on the benches or the new landscaping, it was the fact the village manager walked the village with a purpose, to inspect the village and how it could be improved.

The unengaged manager just walks around; the leader tours the village with purpose.

The dividend is trust. Confidence will build in the leader such that when more difficult discussions are required, the sincerity will be established.

A tip: seasoned managers will walk the village at least once a month with the purpose of meeting at least three residents that they know they have to ‘catch up to’. Maybe it’s to check their health position, maybe it’s because the resident has been expressing concerns to others or perhaps, they simply haven’t been seen for a month or two.

Over 12 months that is 36 residents that will experience an unexpected ‘reach out’ and genuine interest in the person. More ‘trust’ in the bank, and more knowledge in the vault.

This knowledge will also bolster your leadership position with staff. This is the respect that reaffirms you as a leader. You have invested in knowing what is going on.

And all these simple things build the ‘customer experience’.

“I didn’t expect it. My manager understands how we live and was genuinely interested in making where we live better…without being asked. I feel we are in good hands”.

This sounds like great leadership to me.

There is an increasing discussion by state regulators around mandated buybacks.

Started by QLD 18 months ago, the concept is that the operator of the village will be required to ‘buy back’ a home after a set period if it has not been sold.

The driver for governments has been the introduction of the accommodation fees in aged care, the RADs and DAP fees. A person moving from a village to a nursing home will be means-tested for income and assets – and may be required to pay either an upfront payment (RAD) or a daily accommodation fee (DAP).

The upfront payment (the RAD option) must be paid within six months of joining the aged care home. Up until when the RAD is paid, the resident will have to pay daily interest (the DAP amount) on a sliding scale dependent on their wealth.

The government sets the Maximum Permissible Interest Rate (currently 5.96%). If the RAD is $300,000, then until it is paid the DAP interest of $48.99 per day must be paid.

How does a village resident make these payments if they have not sold their village home?

The state governments are thinking of making this the operator’s problem by mandating the operator buys the home back.

This is a significant challenge. Operators explain that market demand, which depends on the price that the family wants for the home being rational and the home being reasonably refurbished, will dictate how quickly it sells, and the resident receives their money.

QLD has led governments and compromising, saying, ‘okay, but 18 months is the maximum time we will allow you to sell the home.’

VIC has added that they want the operator to pay the DAP from six months until the home sells, and then the operator can get this money back.

NSW is starting to talk about the operator having to buy the home back within six months in metropolitan areas and 12 months in regional areas.

For people who don’t understand the retirement village market, all of this sounds reasonable.

But is it? After all, the resident ‘owns’ the contract to the house, just like a normal home in the suburbs.

Often the family controls the sale price and the refurbishment investment, as well as when this work gets done. When does the 18 months start?

And the operator must accept non-binding deposits from elderly buyers who, understandably, are often slow in putting their homes on the market and achieving a sale. Meanwhile, the clock is ticking.

The impact on village owners will be significant, especially in today’s housing market.

With slow sales, operators can quickly build up a vacant stock of, let’s say, five homes they must buy back which is (at $400,000 a home) $2 million. This will mean a visit to the bank for a loan for most operators.

If half the industry has slow sales – 1,000 villages – in 18 months’ time this will equate to ($2M x 1000 =) $2 billion. The banks are unlikely to lend this because, at the same time, this pressure will drive the value of the village down.

It also means that operators won’t have cash to reinvest in the village, which will make homes harder to sell – and all residents will see a drop in the quality of the village and their experience, and the value of their homes.

This will also impact your ability to do your job well as a Village Manager.

Mandated buybacks is a very important issue for us all to follow and understand.

In QLD, operators are about to buy back the first round of homes that have been on the market for 18 months. So, it is a very real problem.

Ask your operator for their thoughts.

Chris