For a homeowner who has reached retirement age and is looking to purchase a retirement home, there are several aspects to consider, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa. Not only do they have to consider the location of the property they want to buy, but also the type of property they want to stay in, and the type of sales transaction that meets their criteria.
Statistics reveal that the majority of South African investors who are in their golden years currently own some kind of property and have sold a property to either downsize and move into a more secure environment that is close to amenities such as hospitals and frail-care facilities. “Banks are generally reluctant to grant finance to investors who are 60 years old and older, which is why the majority of property purchases are cash buys, particularly those in retirement villages,” says Goslett. “Many investors often decide to purchase a retirement home before they turn 60 years old. Certain developments allow investors to buy a home under the prescribed retirement age, even though they set the age of the residents within the development at 50 years old and above. In some cases, investors will purchase a home within a retirement village and let it out until the reach the minimum age required to live there themselves.”
For investors who are in the position to retire, there are a few investment options to choose from, ranging from entry-level homes to luxury properties and everything in between. Apart from the various types of properties available to investors, there is also a few ways in which investors can purchase a home in a retirement scheme. According to Goslett, the different forms of ownership play distinctive roles in what the investor can do with the property, so it vital that they understand what each scheme offers.
He notes that the three options available when purchasing retirement property are:
A sectional title scheme
Purchasing a sectional title retirement home works the same way as any other sectional title purchase. Goslett says that this option will be the most familiar to property investors, as the purchase process follows the regular channels.
“Much like any other property purchase, registration of the home is concluded through the Deeds Office by a conveyancer. All of the regular purchasing costs and fees involved will apply, such as transfer duty and the conveyancing attorney fees,” Goslett explains. “Once the property is transferred into the investor’s name they will automatically become a member of the body corporate which will allow them to have a say as to how the scheme is run.”
Share block scheme
Within a share block scheme, a company will own a building and allocate a number of shares to that building which is divided into share blocks. Company shareholders will have the right of occupation to certain portions of that building. In this instance, the resident owns shares in the company that owns the building and not the building itself.
Unlike a sectional title scheme where residents have a say as to what happens with the development, in a share block scheme, the management and directors of the company can make decisions without consulting the shareholders within the block. A possible disadvantage of this scheme is that the shares cannot be used to leverage further investments, however, if the investor owns an immovable property is can be used as leverage.
There is the possibility for a share block scheme to be converted to sectional title scheme provided 30% of the owners in the scheme vote to convert and after conversion, half the owners support the resolution. If this occurs and the investors take transfer of their units, they will become property owners, rather than share owners.
Life rights or occupation rights
In a life rights scheme, the investor is not purchasing a property, but the right to live in the property. Goslett says that life rights do not give the purchaser ownership of the property, but merely the right to occupy that specific property for the rest of their life, under the Housing Development Scheme for Retired Persons Act.
If the investor is married, the life right will extend to both the primary investor and their spouse. This ensures that in the event that either pass away, the other may continue to remain in occupation of the property. Because the ownership of the property has not been transferred, there are no legal costs, transfer duties or tax payable in this option.
Goslett advises that investors should research each option thoroughly before making a final decision, giving careful consideration to the implications of each option before they commit. “Investors will be able to get all the relevant information from the retirement village or estate they are interested in buying in. If they have queries about anything investors should consult with a financial advisor or real estate professional with extensive retirement property experience. Ideally, investors should have all the documentation checked by an attorney to ensure that everything is in order – errors could be very costly, especially when living on a fixed income,” he says.
According to Goslett, other aspects to consider include whether the property will be registered in the buyer’s name or in another entity such as a trust. These factors will be determined by the financial situation of the purchaser and will include aspects such as Death Duty and Capital Gains Tax.
In conclusion, Goslett says that making wise investment decisions from their very first property purchase will provide investors with the best possible chance of being in a position to afford their ideal retirement home later on in life.
