Approaching retirement can be an emotional and stressful transition from a full-time working life to a retired existence. Making the decision to move from the family home into a home for the retirement years gives rise to choices regarding what form of ownership to purchase.
The term “Life Right” may seem unfamiliar for those outside of the retirement community. Far from climbing the property ladder it could be considered the equivalent of finding a steady balance on the top rung.
The more familiar term “Sectional Title” offers financial growth, but brings with it concerns such as special levies, body corporates and managing agents. In addition, the purchaser is liable for transfer duty, VAT and capital gains tax.
The Life Right model is globally recognised for its distinct advantages enabling residents to live active, independent, autonomous lives without the traditional burdens that come with owning a property outright.
With greater life expectancy than ever before, 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 80s or 90s. Taking all this into consideration Life Rights retirement property maybe the answer.
A recent article by Craig Torr of Crue Invest Pty Ltd provides a clear understanding of the difference between Sectional Title and Life Rights. Highlighting the positives and areas to be aware of when choosing the Life Rights option.
LIFE RIGHTS RETIREMENT PROPERTY: KNOW WHAT YOU’RE BUYING.
11 July 2023 04:47 / By Craig Torr – Crue Invest (Pty) Ltd
Life rights ownership in a retirement village is an attractive and affordable option for many seeking community, security and peace of mind.
Image: Getty Images
Unlike full title property ownership, life rights ownership entails purchasing the right to use the property for the remainder of your life, with security of tenure forming the foundation of this type of contract. Life rights ownership in a retirement village is an attractive and affordable option for many seeking community, security and peace of mind, although it is important to understand the financial consequences of buying into such a scheme.
Ideal for those who have less capital to invest or those wanting to maximise their investable assets, a life rights scheme is a purchase agreement between the developer and the unit holder which guarantees the right to use the property or unit for the rest of the purchaser’s life – or, in the case of couples, on the death of the second-dying spouse. A life right is an inalienable right which means it cannot be transferred to another person and is impossible to take away. That said, keep in mind that there are strict rules on occupancy and only the life rights owner and their spouse may live in the unit, and the unit cannot be passed or endowed to someone else on the death of the unit holder.
Because purchasing into a life rights scheme does not involve any transfer of property, no bond registration, transfer fees, or Vat is payable, meaning that there are very few cost barriers to entry.
Whereas 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 of both the units and the communal areas. Generally speaking, life rights villages offer a fully supported retirement lifestyle with a fully maintained and managed environment, which is attractive to many retirees.
Upon the death of the life rights holder, the right to use the unit reverts back to the owner of the complex, who can then resell it. If you’ve entered into a life rights contract as a couple, it is important to bear in mind that the right only terminates on the death of the second-dying spouse and that no compensation is paid into the estate of the first-dying spouse – and it is important to take this into account when developing your respective estate plans. Upon resale, the deceased’s estate will receive the original purchase price plus a percentage of the net profit which is determined at the time of purchase, less any selling or refurbishment costs. It is also worth noting that a unit holder can voluntarily relinquish their right if they no longer wish to reside there, in which case the same re-sale principles would apply.
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 the purchase of a life right is age 50, although keep in mind that some developments have a higher minimum age for purchase while others include a maximum entry age. The terms of your life rights contract are extremely important, especially when it comes to the terms of re-sale, and it is important to read the fine print.
Your life rights contract should state what percentage of the purchase price will be paid to your estate in the event of death, bearing in mind that terms vary greatly from development to development.
Some schemes can include a refund of your initial investment plus a percentage of the profits on resale, while others provide for the repayment of a percentage of the purchase price.
When reading through your contract, ensure that your right to use the property for the rest of your life is expressly guaranteed. Security of tenure forms the foundation of a life right, and this should be made clear in the agreement. Security is a major drawcard for many retirees, who enjoy living in close proximity to their fellow residents while having all security needs taken care of. As such, your contract should set out what security measures are in place, which could include 24-hour onsite security, CCTV cameras, beams, electric fencing and armed response.
The healthcare facilities provided by life rights schemes can vary greatly, so decide what type of care you are looking for and do your research. Many developments provide nurse call facilities and 24-hour emergency, while some include onsite doctor visits, private nursing, palliative care, Alzheimer’s and dementia care, diabetic clinics, assisted living, frail care, as well as the ability to customise your care package.
Importantly, before buying into a life rights scheme, do your research into the financial soundness of the organisation to ensure that it is financially reputable and has a good history of running life rights schemes.
Ensure that the developer is able to provide a transparent budget levy for the next two or three years so that you can plan accordingly. Unlike in the case of sectional title ownership, life rights owners should not be faced with any unexpected or ‘special’ levies, making it an attractive option for those living on a fixed retirement income.
There are an enormous number of life rights schemes available to South Africans, and we are spoilt for choice when it comes to choosing a retirement village that meets our specific requirements and budget. Life right developments cater for all levels of affordability, and typically the cost of a life right would be lower than what you’d pay for a house or apartment of a similar size. Every development comes with its own set of facilities, amenities and healthcare services, so it is important to do your homework and prioritise what is important to you before buying into a development.
If you’re buying off plan, be sure to consider the impact of moving into a new development with incomplete facilities and potentially second and third-phase building going on around you. Buying off plan can also be somewhat misleading when it comes to appreciating the actual size of your unit, so be sure that you do your measurements carefully – bearing in mind that artist impressions of the complex can be deceptive to the untrained eye.
Because of their popularity, there are normally long waiting lists for life rights retirement developments, and it is advisable to put your name down at a selection of villages.
Remember, if you’re moving from a large, freestanding property, it may take time to adjust to communal living and the lack of privacy that comes hand-in-hand with living in close proximity to others. Further, if you are an animal lover, it may be difficult to find a retirement complex that allows pets. Some complexes allow residents to bring their existing cat or dog, but prohibit them from replacing their pet when the pet dies. Other complexes prevent pet ownership outright, while some allow for small dog breeds and cats to live in the complex.
In a nutshell, life rights living provides all the advantages of home ownership without the hassle of insurance, home maintenance, garden upkeep, domestic workers, repairs and security upgrades – but fully appreciating the terms of your contract is essential if you want to get your financial planning right and avoid nasty surprises later on.