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Author: Jason Appel

Retirement Estates – Understanding your options

One of the major decisions people face when retiring is where they will live. The decision to move is an emotional one, especially as many people have lived in the same house for years, raising their families, so the thought of moving seems like severing ties with an old friend. Making the decision to move is often spurred on by health reasons, high maintenance costs, the desire to relocate to a different province, or the need for property equity to fund their retirement income.
Once the decision is made, many of our clients opt to move to retirement villages or estates. The traditional concept of retirement villages and estates has changed dramatically over the years, and the range of lifestyle activities and easy access to medical care and security now makes them an attractive option.

When deciding to move into a retirement village or estate, where applicable, one needs to decide on the form of ownership. The pros and cons of an outright purchase versus life rights and the long-term impact on one’s financial plan must be carefully considered.

There are upsides and downsides to both. Investing in a sectional title property allows an individual to remain in the property game. Life rights is an investment in a retirement development, which guarantees the holder a safe and secure home for the rest of their life. In the case of couples, the right to use the unit ceases upon the death of the second spouse or partner, and this right is inalienable.

There is often confusion about the differences. A Life Rights scheme differs from a Sectional Title or Full Title property in that ownership of the property is held by the Life Rights scheme owner/operator. Even though legal ownership of the property is not transferred to the occupant, a Life Right is sold under a secure legal framework, which essentially provides the occupant with all the legal protections of full ownership of the property during their lifetime.

Clients are often initially hesitant to consider Life Rights as they are concerned that it will be financially detrimental to them or their heirs in the long run, as units cannot be inherited. However, often after running the numbers, it becomes apparent that this is not necessarily the case. Because purchasing into a Life Rights scheme does not involve any transfer of property, no bond registration, transfer fees or VAT is payable, meaning there are very few cost barriers to entry. While residents of a Life Rights scheme enjoy similar benefits to sectional title owners, they have the added advantage that the developer remains the sole owner of each unit and therefore carries the responsibility for maintenance and upkeep.

Life rights are regulated in terms of the Housing Development Schemes for Retirement Persons Act 65 of 1988 (HDSRP), which also stipulates that the minimum age for purchase of Life Rights is age 50; however, some schemes have a higher minimum age. The terms of your life rights contract are extremely important, especially regarding the terms of re-sale. Your life rights contract must state what percentage of the purchase price will be paid to your estate in the event of death, bearing in mind that terms vary significantly from development to development.

Some schemes can include a refund of your initial investment plus a percentage of the profits on re-sale, while others provide for the repayment of a percentage of the purchase price.

The decision of if, when and where to move is hugely personal, and there is no one-size-fits-all approach, so we strongly encourage clients to start having this conversation sooner rather than later. Due to their increased popularity, Life Rights schemes often have a long waiting list. Some retirement villages and estates have an upper age limit, and some don’t offer the option of an outright purchase, so research is essential in finding what works best for you to ensure not only your return on investment but also your return on lifestyle.

Please get in touch with your Retiremeant™ Specialist if you have any questions or would like to explore your options further.