Retirement village operators will be put under financial pressure and some may even go out of business if they are forced to pay money owed to departing or deceased residents quickly, according to their industry group.
The Retirement Villages Association (RVA), which represents the vast majority of the industry, has made the point in submissions to a review of the sector by the Ministry of Housing and Urban Development (MHUD).
The industry has been criticised by resident groups, the Retirement Commissioner, and consumer groups, for delays in repayments, extended fees, and lack of a share in capital gains.
RVA executive director John Collyns said it was ready for some changes but not mandatory repayments which would deter lenders and threaten the viability of small operators.
"The sector's funders have told us that a mandatory buyback regime could reduce or eliminate bank appetite to fund the sector."
"A mandatory requirement to pay residents out within any specific timeframe would reduce consumer choice, increase costs for residents, slow down new village development, and result in insolvency for some smaller village operators in regional New Zealand."
The big six companies - Ryman Healthcare, Metlifecare, Summerset, Arvida, Oceania, and BUPA - own about 66 percent of the sector, with the balance owned privately or by small not-for-profit or community organisations often in the regions or rural areas.
Collyns said most vacant units were sold in about six months, but the industry accepted that if sales took longer it was fair that residents should be compensated.
"Rather than penalising the efficient as well as the tardy by imposing a statutory deadline for refunding the outgoing residents' capital, we support MHUD's proposal that operators pay interest on the outstanding amount. We support this obligation starting after nine months."
The former Labour government ordered the MHUD review of the sector's 20-year-old legislation amid a wide range of complaints the law was out of date and offered little consumer protections to residents.
In response the industry has made some voluntary changes, such as ending weekly fees on vacant properties and Collyns said the RVA would accept a mandated code of conduct for the sector, but much of the status quo was still fit for purpose and did not need radical change.
"Our view is that the system, by and large, performs well, offers residents and their families easy access to the system, and in most cases is reasonably timely."
More than 50,000 people live in retirement villages and homes of some sort, but demand is expected to rise as the population ages.