MAIN IMAGE: Jason Appel, financial planner at Chartered Wealth Solutions
Danie Keet
Property practitioners should be very sensitive to the needs of elderly people planning to move to a retirement village as an option for them to scale down. It is one of the most difficult choices to make and many factors should be kept in mind. Practitioners can play a vital role as consultants and even somewhat of a life coach when they can provide all the pros and cons of moving into a retirement village.
The circumstances are hugely personal, and circumstances vary from person to person. They might be a single older person with no children or married and with adult children who have left the nest, or married and now looking after grandchildren, or still supporting adult children. One of the most important things to wrap your head around is – if you do make the move, what sort of property contract you should enter into. There are three possibilities offered in retirement villages – life rights, freehold and sectional title.
Life rights essentially means that once you pass away and your unit is resold, your estate gets back the amount you paid for the property, minus some costs, but not any profit made on the sale.
Most retirement complexes no longer offer outright ownership, according to Jason Appel, financial planner at specialists in retirement planning, Chartered Wealth Solutions. “Internationally, it’s mostly life rights, but we’re still getting used to it here.”
Life rights options are more budget friendly than ownership, he says. You can generally get a life rights unit at a lower cost than outright ownership. You do pay levies, but these cover all external maintenance, security, perhaps a meal a day, and the fact that there’s a maintenance team on the property to respond quickly to any problems.” Levies also cover care of the garden, a swimming pool if there is one, and all communal areas.
If you go for life rights, you forgo the capital appreciation in the property’s value. “This growth is hard to estimate,” says Appel, “as residential property valuations vary quite drastically. I would suggest that people consult their financial planners before making the decision.”
One of the main benefits of life rights is that if you live to a really old age, and you run out of money, the village will not throw you out, adds Appel. What happens is that the cost of your continued care is deducted from the capital amount you paid upfront. For example, if you paid R1.5-million for a flat, and the village cares for you for an extra few years after your money runs out, after selling the unit your estate will get the R1.5-million minus the care costs.
People sometimes avoid life rights because the feeling is that their heirs will lose out on that initial investment. Appel, however, says he would rather know his parents were being well cared for and that there was no risk of him having to put in extra money down the line. “It really helps me knowing that’s taken care of.”
From a purely numbers point of view, it’s better to invest in a retirement village earlier rather than later. “A person buying in at 50 or 72 gets the same value over time, so the younger person will ultimately get a better deal,” says Appel. However, most people are not ready to even talk about it in their 50s.
An added consideration, though, is that most places have a waiting list. You’ll pay a small amount to be placed on it, but if you get the call before you’re ready, you can decline, and you’ll be pushed down a spot on the list. But some places have a maximum age restriction as well, or some will say you’re restricted to a smaller unit if you’re at advanced age.
So, it is better to move in before your age becomes a problem, but only you will know at what point you are ready. And then again, the older you are, the more difficult change is.
Three contracts explained
Freehold: “You own the land and building, it’s your responsibility, you pay rates and taxes and there is a registered title deed in your name,” explains Rob Jones, managing director of Shire Retirement Properties. “You can leave it to your heirs and any gains in value would be for you. There may be some exit levy to pay to the complex, but it differs from place to place.”
Sectional title: “You own a portion of the building, say an apartment or townhouse. You will have a title deed and you can leave it to your estate. You are responsible for internal maintenance, while the body corporate takes responsibility for outside maintenance as a rule. You pay for that in your levies. There may be some exit levy to pay to the complex, but it differs from place to place.”
Life rights: “Essentially it’s a lease for the rest of your life,” says Jones. “You’re paying upfront for the occupation of the building for you and your spouse for the remainder of your lives.” Details differ from village to village, but usually it means that if you pass away and your unit is sold, your estate will get back the amount you paid, but not any portion of the increase in value (gain).
“In some estates a share of the profit will be paid to your estate, in others you will get back a bit less than you originally paid,” says Jones. The levies cover all external maintenance, rates and taxes and common service costs such as security and common garden maintenance. Additional services are often included such as meals, cleaning, and laundry.
Life rights can be a bit cheaper as a capital investment, says Jones, because the developer knows he can make profit repeatedly, as he resells the unit over the years.
