Getting through the retirement village maze

2012-09-15 14:07

Retirement villages with Life Right ownership structures are becoming increasingly popular as they reduce the monthly running costs, writes Maya Fisher-French

When most people retire, they opt to sell their property and buy into a retirement village because of the range of amenities, security and social life on offer with people of similar ages.

There are a range of options available, varying from luxury retirement villages with every conceivable convenience to charitable organisations that manage well-run complexes that cater for those with limited income. Within these are a range of ownership options that allow for different needs, based on income, age and whether a buyer expects a return on their investment.

According to Arthur Case, general manager at retirement village developer Evergreen Lifestyles, the three main purchase options that buyers have available to them are: Sectional Title, Share Block Scheme and Life Right.

In all three schemes, the buyer has the protection of the Housing Schemes for Retired Persons Act of 1988.

Life Right is the most popular form of retirement home ownership internationally. However, the scheme is still a newcomer to South Africa.

This form of ownership is considered ideal for those who have less capital to invest, or simply because of other benefits such as lower monthly levies and less administration.

Life Right offers precisely what the name implies: buyers have a legal right to occupy the unit for the duration of their life.

The buyer does not buy a unit, but secures the right to occupy the unit for the rest of their life.

The village and all its facilities remain both an asset and the responsibility of the developer.

When the Life Right terminates, through death or other circumstances, it reverts to the owner of the village, who is then entitled to resell it.

Upon successful resale, the buyer’s estate receives the original purchase price, along with a percentage of the net profi, which is determined and agreed to at the time of purchase.

With Life Right, the unit cannot be bequeathed to children, nor can a child buy one for their parents with the intention of living there themselves.

Cost benefits
There are significant cost savings. Unlike Sectional Title developments, it is not a property transfer so there are no bond registration fees, transfer duties and VAT.

Monthly levies also tend to be lower as the property owner is able to finance the upkeep on the profit made when reselling the units.

In effect, Life Right converts a portion of the capital value of your property to fund ongoing improvements and maintenance to reduce living expenses.

Case says residents enjoy similar privileges to the homes being purchased by Sectional Title, except the developer remains the sole owner of each unit. The developer carries the responsibility of maintenance and upkeep.

The property is an investment for both the holder and the developer, so there is an interest by the developer to maintain the property.

Case adds that developers are aware the ongoing desirability and performance of their asset will depend on the quality, condition and affordability of the village, and this naturally incentivises them.

Legal protection
Life Rights are protected by an act of Parliament and no property developer or owner can remove your right of occupation.

Importantly, the Housing Development Schemes for Retired Persons Act requires the Life Right developer to provide a “statement of basis” upon which any levy is to be calculated as well as an estimate, for a period of two years in advance, of the amount of the levy.

In other words, the retiree enjoys levy transparency to plan around predictable costs.

“Essentially, a Life Right scheme can be viewed as a housing product, an insurance policy and a worry-free existence rolled into one. This is not to say that peace of mind cannot be secured via other schemes, but a well-run Life Right scheme offers all the ingredients for a successful, secure and stress-free environment,” says Case.

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