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With longer life expectancy these days, a big concern for older people is whether they will outlive their assets

When it comes to retirement – or as 60-is-the-new-40 people say: upgrading your lifestyle while downgrading your work rate – you will begin contemplating a host of looming decisions.

One of these is what sort of living arrangement do you want? The alternatives are staying where you are, with the prospect of moving into somewhere smaller later, or moving into some form of retirement village now.

This is a vital decision because it involves how best to use your investments to fund your living arrangements for the rest of your life. The trouble is that how to structure the investment process is often overlooked and not part of the decision-making process, something that is only addressed once the “sign here” documents are in front of you.

Arthur Case, chief executive of Evergreen Lifestyle, a leading provider of retirement living in South Africa and a subsidiary of the Amdec Group, says with greater life expectancy, one of the biggest concerns worrying older people is whether they will outlive their assets.

Sadly, even substantial retirement savings might not be enough to support a person who lives well into their eighties or nineties. Gerhard Kotzé, managing director of the RealNet estate agency group, says the most likely choice is between a sectional title development and a life rights complex.

“And there are quite a number of factors you will need to consider in making the decision.” Craig Scott, the developer of Langebaan Country Estate, which will launch its life rights retirement village, The Village, this year, says life rights are the most widely used retirement accommodation structures globally and were introduced in South Africa during the late 1960s. Before, retirement properties followed the normal sale process – an outright purchase of a sectional title unit or freehold property or through a lease agreement.

Life rights is a form of lease agreement with the property developer and is often referred to as a life lease: a lease agreement for which you pay up front. Scott explains: “You can, for instance, pay R2 million upfront for a unit in a life rights structure. You have paid for your right to occupy the unit, and the estate, for you and your partner, who now own the right to live in the unit for the rest of your lives.”

This means there is no monthly bond repayment or rent, but the owners have to pay a consumption levy.

Scott says the benefits of life rights include:

● No bond repayment or rent

● When you or your partner die, the remaining spouse lives on in the unit

● You have a real right under property law to live in the property

● When both spouses die, the purchase price or a percentage of the purchase price, depending on the contract, is refunded, but your heirs will not benefit from property appreciation

● If you remarry, your new spouse can live in the unit with you, but will not have a right to remain there after your death

● You are effectively a tenant so all maintenance is the responsibility of the developer

● Life rights can be nominated to a beneficiary, such as your children, and are not part of the normal deceased estate red tape

● There’s no VAT on the sale or transfer duties and no registration fees

● You have a secure return of capital invested

● Resale is the developer’s responsibility, not that of your heirs.

Rob Jones, chief executive of Shire Retirement Properties and an expert consultant to the retirement industry, says life rights holders are protected under The Housing Development Schemes for Retired Persons Act.

“The act prescribes rights for people buying into retirement villages, specifically life rights. The developer is obligated to have the title deed endorsed as a life right scheme. Once the deed is endorsed, purchasers who buy into the life right scheme are protected by law.” Jones says a potential buyer must check the scheme is established in terms of the act. 

“Developers have to be transparent as to what the levies are and these levies must be fixed for a term of a year with a two-year estimate, any mortgage over the land must be made known, and once the first occupants move in, the developer is not permitted to apply for any additional loan on the land.”

Jones says a well-managed life rights village should have good security, care facilities and transparency that provides financial security. Scott says his company considered all types of ownership in The Village: “Although life rights is a long-term investment for any developer, it certainly is the best choice for those considering their retirement options.” 

Kotzé says usually life rights buyers will also be buying access to on-site health care and related services at an affordable, predictable cost. “This is important to consider as your health care needs are likely to increase faster than your income as you age.” The development company is usually still involved in the management of the cottages or apartments in the complex and any other facilities such as a community centre or frail care unit because it is the actual owner of the property. This can also be beneficial as the developer has a vested interest in maintaining the village and adding to the facilities offered.

Usually the developer will also establish a “stabilisation fund” at the outset to help keep monthly levies down and enable buyers on fixed incomes to budget with certainty. Most life rights schemes have facilities such as a club house, recreation centre, dining hall, assisted-living flats, and a frail care unit.

Kotzé says these are expensive to build and run so many sectional title schemes do not have them. “That could mean facing another move at an advanced age if you become chronically ill or frail.”

Case says buying into a life rights scheme guarantees you and your partner the security of lifetime occupation, compared with the responsibilities that come with buying into a sectional title village, such as levies, special levies, maintenance, security and insurance.

“A sectional title purchase offers no lifetime guarantee. If an older resident outlives their pension, they might have to sell up and move. A life right guarantees a safe and secure home for the remainder of one’s natural life, with the added benefits of resort-style facilities, top security, a fully managed and maintained environment and health care facilities. 

“Ultimately, life rights deliver peace of mind and freedom from financial worry. With affordable levies, pricing tailored to fit your budget and tenure for life, the prospect of living longer is no longer cause for anxiety.”

The pros and cons of a life rights property versus a sectional title unit 

Con of life rights:

● Gerhard Kotzé of RealNet says you can’t get a housing loan to buy a life rights property because there is no underlying security for the loan as you will not own the unit.

● You can’t leave your unit to your heirs. The company will sell the unit when you die, and your heirs will receive only a percentage of the purchase price. The rest usually goes into the stabilisation fund.

However, when you buy a unit in a sectional title development, you are the owner of that unit, and this is an asset you can freely resell or leave to your heirs. “Along with the other owners, you also become a member of the body corporate responsible for managing and running the complex and, if you do that well, you or your heirs will get the full benefit of any appreciation in the value of the property.”

Pros of life rights:

● Arthur Case of Evergreen says the purchase price of a life right unit is generally lower than that of a house or apartment of similar size in a comparable area.

● Once a sectional title property is completed and sold, the developer has no obligation to maintain it. With a life rights village, the developer retains ownership of the property in perpetuity.

● The developer takes care of the property and provides extra facilities such as a club house, dining hall, assisted living and frail care services.

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