What does the new Aged Care Bill mean for residential aged care?
What does the new Aged Care Bill mean for residential aged care?
On 12 September 2024, the Australian Government introduced the new Aged Care Bill 2024 to Parliament. Aiming to enact significant reforms across the aged care sector, this bill seeks to establish a sustainable funding framework for the future of aged care while addressing approximately 60 recommendations from the Royal Commission into aged care quality and safety. It’s anticipated this bill will commence on 1 July 2025.
Will the Aged Care Bill improve the viability of new residential aged care beds?
The undersupply of residential aged care beds in Australia is well-documented. By the end of this year, approximately 3,500 beds are expected to be added to the system, yet demand is anticipated to increase by up to 7,000 residents. As the growth in available aged care beds fails to meet the demand, other parts of the healthcare system - such as in-demand hospital beds - may be placed under additional pressure.
The bill comprises eight chapters addressing approximately 60 recommendations from the Royal Commission. Of particular interest is Chapter 4 - Fees, Payments, and Subsidies - which details the key financial changes that aged care operators, investors, and financiers will no doubt be monitoring closely in relation to the provision of new beds.
While several key policy changes will require aged care recipients to contribute more to non-clinical services (such as recreational activities, housekeeping, and meal preparation), there are also beneficial outcomes that enhance the feasibility of new aged care housing projects. Our experts discuss this below.
Refundable accommodation deposits (RADs)
A refundable accommodation deposit (RAD) is a payment made to aged care operators as a new resident moves in, which is refunded as the resident leaves the facility (minus any predetermined deductions for care or services). The maximum room price will rise by $200,000, from $550,000 to $750,000, without requiring regulatory approval and will be indexed over time. This adjustment acknowledges the higher costs that operators face when constructing new residential aged care beds, enabling more flexible pricing and ensuring contemporary accommodation standards are upheld.
Refundable accommodation deposit retention
Operators will be able to retain two per cent of new RAD balances per annum for up to five years to cover the costs of maintaining and improving facilities. This retention income will be recognised in stabilised earnings (Core Value), that could result in a positive valuation uplift for beds ‘Core Value’ by five to seven per cent and potentially higher for projects commanding higher RADs.
Ultimately, higher values assist viability for new developments and the ability for operators to recycle capital through financing. However, there is still the suggestion that the Government may take progressive steps to reduce operator reliance on RADs subject to an independent legislated review by 2030.
Benefits for residential aged care operators
While some aged care recipients may face higher contributions in some areas, the Bill aims to balance benefits to support growth and achieve a more sustainable sector going forward.
Operators are gradually regaining confidence after several challenging years and having clarity over the updated legislation will bolster this. Some operators are already starting to revisit development plans for new facilities with some also expanding focus to play a broader role in the provision of seniors housing.
This trend is likely to continue with increased funding into Homecare and the ability for larger operators to access broader government funding initiatives, such as the Housing Australia Future Fund Facility (HAFFF) and the National Housing Accord Facility (NHAF), to support the provision of affordable seniors housing on surplus aged care land.
How BDO can help
As experts in aged care, the broader healthcare, and specialist housing markets, our dedicated team comprises individuals with specialised experience in valuation, property financing, and structured development transactions. We are well-versed in the property investment and development process and the commercial and financial metrics associated with each sector element.
We can help you prepare concise and comprehensive investment or business case documents, enabling you to better understand the key risks and opportunities of a real estate-related project. Contact us to discuss your next project.