Following 12 months of testing, Lendlease has revealed its consumer choice of four retirement village contracts:
- Traditional DMF – “Hold on to your cash now by deferring payment of fees until you leave the village”;
- Prepaid Plan – “Enjoy the certainty of paying the management fee upfront when you enter the village. Retain capital gain”;
- Refundable contribution – “Feel secure knowing your money is guaranteed and don’t pay a management fee – instead pay a higher contribution on entry that is refunded when you leave”; and
- Pay As You Go – “Pay a monthly contribution rather than a lump sum management fee”.
Lendlease Retirement CEO Tony Randello tells us it has been his mission since being appointed CEO to lead consumer responsive innovation in the village sector, instead of relying on “a business model that is 50 years old”.
“If we don’t innovate the sector will fall away. Since the early 2000s, research has told us the baby boomers want choice and we have simply given them one-, two- and three-bedrooms – a narrow vision of choice”.
“I tell my team it is like the mobile phone – you can buy on a plan or buy outright. We only offer the plan option”.
The maturing of superannuation investment nest eggs and the rising housing market means people now look to personal finances as an investment strategy, and want options. If they can afford to pay upfront it may be a better strategy for them as individuals.
Randello says they are still testing the four alternatives and expect to fine-tune the packages along the way.
The prepaid option has been in the field in around six development villages for about 12 months, but marketed only to their database, not advertised. The take-up has been around 20%, with 80% still opting for the traditional DMF model.
Randello comments: “We expect the traditional DMF to remain the favoured contract, the ‘use now pay later’ option. But what the choice does is give legitimacy to the traditional model”.
The detail on each plan
Average of 30-35% DMF on the resale price after seven years. 1-2% sales commission. $10-15,000 refurbishment fee with option to upgrade at between $50-70,000 to maximise resale price.
Pay an upfront fee of around 18% and receive 100% of the sale value when leaving the village (less reinstatement costs, selling costs etc). For example, a $500,000 DMF home will cost $590,000 upfront. After 10 years if it sells for $1 million the departing resident will receive the $1 million.
Roughly one in five customers have taken this option over the 12 month test.
Pay a higher ingoing contribution and Lendlease will provide a ‘money back guarantee’ on a set amount when you depart. An example is a $500,000 home may have a $650,000 guarantee when you leave, paid within 60 days. There are no selling fees at the end but you do pay an upfront establishment fee of 3% ($15,000 in this example).
In addition to certainty for the family on the cash settlement, there is the certainty of funding residential aged care.
Pay as you go
Developed for customers (and their families) who may not wish to sell the family home or are managing their investment income.
Still under the Retirement Villages Act, they will receive a lease (currently five years) and pay rent with no upfront payment and no departure fee or payment.
The rent will be above the local market, reflecting the community facilities enjoyed and management support. They will also pay the same ongoing fees as the rest of the village residents on top of their rental fees.
The ‘pay as you go’ alternative is currently only available for serviced apartments during the test phase but is intended to be rolled out to the wider village home market.
For additional contract examples see Rachel Lane’s explanation HERE.
Randello says the ‘alternative’ contracts are in six villages now and will be in nine villages by next week and 15 by the end of April.
“Research doesn’t give the full story. We need real feedback to tweak it; to get the execution right”.
“I am passionate about this sector and determined we will lead the innovation. It is what gets me up each morning. We don’t want to be like Kodak, with the best product but left behind”.
He also hopes the rest of the sector will follow: “Choice gives transparency”.
“We were ready to launch last year but the (media) events held us up. You can now expect a new innovation from us every year”.
Lendlease also has about 17 strata villages, but the contract ‘alternatives’ packages can only be possible if they get all residents to agree.