Consider the options when buying for retirement

Homeowners who have reached their retirement age and are looking to purchase a property, will not only have to consider where they want to retire and the type of property they want to buy, but also the type of sales transaction that best suits their needs, says Adrian Goslett, CEO of Re/Max of Southern Africa.

Goslett says according to statistics, most South African property investors in this life stage currently own some kind of property and have sold one to downsize or move into a more secure environment that is close to amenities such as hospitals and frail-care facilities.

He notes that due to the fact that banks are generally reluctant to grant finance to investors who are older than 60, the majority of retirement property purchases, particularly in retirement villages, are on a cash basis.

“There are those investors who opt to purchase their retirement property at an earlier stage as some estates allow investors under the prescribed retirement age to purchase property, although they set the age of the residents at 50 or older.

Often investors in these circumstances purchase a retirement property and decide to rent it out until they are of the age to move into the estate themselves,” says Goslett. He adds that for those who have made provision for their retirement, there are a number of investment options available which range from entry-level, sectional-title units to luxury villas.

“There are also several ways in which the investor can choose to purchase a property within a retirement scheme, with the different forms of ownership playing a distinctive role in what can be done with the property,” he says.

Goslett says the three options available to investors when buying retirement property are:

Sectional title units

The sectional title option in a retirement purchase is much the same as any other sectional-title property purchase.

“This is the option most familiar to property investors as it is that method of purchasing a property through the regular channels,” adds Goslett. He notes that with this option, registration of the property is concluded through the Deeds Office by a conveyancer and there are the regular purchasing costs and fees involved, such as transfer duty and the conveyancing attorney fees.

As an owner of a sectional-title unit, the investor 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

Essentially with this scheme, a company owns a building and allocates a number of shares to that building which are divided into share blocks. Goslett says this provides the owners of shares in that company with the right of occupation to certain portions of that building.

In this instance a share-block resident therefore owns shares in a company and not a section of the building itself. In this scheme, the management and directors of the company can make decisions without consulting the shareholders in the block.

Another possible drawback is the fact that unlike immovable property, shares cannot be used as leverage for further investments. It is possible for these schemes to be converted to sectional title provided that 30% of the owners in the scheme vote to convert and after conversion, half the owners support the resolution. Once the investors take transfer of their units, they will become property owners, instead of share owners.

Life rights or occupation rights

If the investor chooses a life rights retirement sale they will be purchasing the right to live in the property but not the property itself. According to Goslett, life rights do not give the purchaser ownership of the property, but rather the right to occupy that specific property for the rest of their life, under the Housing Development Scheme for Retired Persons Act.

In the case where the investor is married, the life-right agreement extends to both the investor and their spouse, so if either one passes away, the other may continue to remain in occupation. There are no legal costs, transfer duties or taxes payable in this option.

“Before making a final decision, investors need to research each of the options and the implications that each comes with before committing themselves,” advises Goslett. “The retirement village or estate should be able to provide the investor with all the relevant information regarding the sale options available to them. If they are unsure of anything, it is advisable for the investor to seek the counsel of a financial advisor or real-estate professional with extensive retirement property experience. Investors should also ensure that all documentation of the transaction is approved by an attorney, as mistakes could prove to be costly, especially when living on a fixed income,” he says.

According to Goslett, there are also a few other factors to consider, such as whether the property will be registered in the buyer’s name or in another entity such as a trust for example.

These elements will be determined by the financial situation of the purchaser and will include factors such as death duty and capital gains tax. Goslett concludes by saying that making wise property investments from the very start of purchasing your first property will provide investors with the best possible chance of being in a position to afford their ideal retirement home when they are in their golden years.