MAIN IMAGE: Sue de Klerk, Property Practitioner at Jawitz and Gus van der Spek, Founder of life rights management company, Manor Life and retirement lifestyle estate
Statistics South Africa’s 2019 mid-year population estimates put the entire population of South Africa at around 58.8 million people, of which approximately 9% is over the age of 60 – that is, around 5.2 million people. By 2050, out of a projected population of 75.5 million people, the percentage of people over 60 will be around 16%, or just on 12 million people. Coupled with the growing trend of seniors opting to live as independently as possible, for as long as possible, with facilities on hand, it’s no surprise that retirement developments are in increasing demand around the country.
Sue de Klerk, Property Practitioner at Jawitz, operational at the Waterfall Hills Mature Lifestyle Estate in Waterfall City, Midrand, and Gus van der Spek, Founder of life rights management company, Manor Life and retirement lifestyle estate, Wytham Estate in Cape Town, share their insights into this niche market.
What are buyers looking for when it comes to a retirement development?
De Klerk explains that the number one consideration is security. The next consideration is what is available – do the properties offer privacy, good living spaces, back-up power etc? Frail care and/or the proximity to care is also important to potential buyers. Secondary concerns include general lifestyle benefits such as common facilities, communal lifestyle and the general upkeep and appearance of the estate.
What are the purchase options in these estates?
“The two most common options offered by retirement developments in South Africa are sectional title or life rights ownership. These two options differ significantly on the matter of monthly costs (in terms of special levies and maintenance) as well as what happens to the unit after the owner passes on. Sectional title ownership is also an option for homebuyers of all ages, while life rights are reserved for retirees buying in to a life rights estate.
Retirees are usually much more aware of what’s involved in sectional title ownership than about life rights ownership, despite its increasing popularity,” explains van der Spek. “This has created some misconceptions around what life rights ownership actually entails. While both options have their pros and cons, life rights offer retirees a more flexible form of ownership. It also offers lowered upfront and ongoing costs, along with a host of other benefits.”
De Klerk notes the example of Waterfall which uses a 99-year lease format for the purchase, the benefit being no transfer duties payable as a buyer, however she says that, “It is imperative to inform buyers of the payback to the landowners of 10% plus vat in the case of Waterfall Hills) and 12% plus vat in the case of its sister estate, Waterfall Valley. Many purchasers don’t foresee themselves ever selling, but when circumstances change, it sometimes becomes necessary, and they need to have been made aware of the cost of sales”. She goes on to mention that buyers also need to be informed of what is covered by monthly levies and what the other monthly costs may be.
The Life Rights Model Explained
Van der Spek goes into more detail regarding a life right agreement, which involves three parties:
- The Owner, who grants the life right. This is the owner of the retirement estate. They grant a right of tenure known as the Housing Interest over their property.
- The Holder, who pays for and holds the life right. They acquire the Housing Interest in return for an interest-free loan made to the Owner.
- The Occupant, being the person who lives in the Housing Interest and has the right to remain there for the remainder of their life.
“The Holder and Occupant of the life right are usually the same person or a couple, but occasionally the Holder is a formal trust or family member who pays the life right to ensure that the Occupant can live in the unit,” van der Spek explains. “A life rights contract is cancelled when either the occupant voluntarily decides to move out or they pass away.”
What The Family Should Know
Life rights differs to sectional title or freehold home ownership in that a life right occupant’s claim to the property ends upon their death. This has obvious implications for the family members and descendants who would ordinarily be tasked with managing the sale of a home when wrapping up the estate of the deceased.
“If the Occupant of the Housing Interest passes away, the sale of the life right operates similarly to a house sale. The Holder of the life right (if not the Occupant) is paid once the life right is sold to a New Holder. If the Holder of the life right is also the deceased Occupant, the money will be paid to their estate,” van der Spek explains.
Take Exit Fees and Levies into Account
The final considerations that retirees should take into account are the exit fees and special levies built into most life right contracts.
“Renovation and other hidden fees may be charged in some retirement estate contracts and vary from estate to estate. Something being undetermined values which can form a large part of the original investment. However, some estates, such as Wytham, choose to cap these fees after a certain period. They are intended to be all-inclusive and cover estate maintenance, unit refurbishment and placement fees,” says van der Spek.
“This is hugely beneficial to the Occupant as they can enjoy a huge range of amenities, serviced-living, and home-based care, and have no maintenance responsibilities for an all-inclusive, lower cost. It allows them to spend enjoy their Golden Years stress-free, as is always the goal with retirement,” he concludes.
Is It a Different Ball Game Selling Retirement Units?
“Most definitely”, says de Klerk, “It is completely different. The buying process is generally more drawn out, buyers start with a “research” phase and have to “tour” the estate and its common facilities as well as various homes on the estate. Often buyers are just thinking about making this move and it is a difficult decision for them. Sometimes buyers are being strongly encouraged by children to make the move. There is a lot more personal interaction, empathy and walking hand in hand with these buyers. There is often a lot of stress involved in the moving process and this needs to be handled with attention to detail and constant communication. As this is a relatively small segment of the market, generally all agents are working with the same buyers, so this means service is imperative”.
