In preparation for your retirement, you should do the necessary research into the various housing options before finally deciding to purchase a place in a retirement village. Here are some of the factors you need to take into consideration before moving into a retirement village or purchasing a unit.
As can be expected from buying into the property as an investment, there will always be an element of risk involved. Even if the law gives you ample protection, you will always find sharp operators trying to find the quickest way to separate you from your hard-earned money. Not only are there many scam operators, but a development or property scheme could also have scheme-failure risks like under capitalisation or going bankrupt during operations.
Although the law protects your capital, other problems that may arise include developments being incomplete or promised facilities not being provided. Since projects are often developed in phases, the revenue earned from a previous phase is usually used to finance the next phase, stretching the financial risk past the point where your unit is finished and occupied to when the last phase is sold.
Take note, just because a large and well-known financial institution is financing the project, it is not necessarily a guarantee for buyers. There is a good chance that the bank will have a preferential right to any available assets, and to take the word of the salesperson or developer is often a mistake. Make sure you check details like whether you purchased ownership rights versus merely renting your accommodation to prevent future disappointment.
Should the resale of your accommodation be a consideration, buying in the right place at the right price is key to possibly reselling your property at a profit in the future. Be aware that there are different termination and resale conditions attached to your property where you might only be able to sell it back to the project or only be entitled to a percentage of the profit made on the sale. A portion of the resale profits kept by a scheme is often used for the benefit of all residents, for example, keeping down levies or building up a stabilisation fund.
Right from the start, make sure you know how a scheme defines the “profits” from the sale. These could be either before or after the deduction of taxes, commissions, and other costs, such as those of any improvements you may have made. These factors could have a significant impact on how much money you receive on the sale.
An expense that can often trip up a solid investment is the monthly levies. Prevent being worse off when comparing the cost of buying into one village to another by always including the levies charged. When taking the levies into account, also remember to compare what you are getting for your levy, namely facilities and services. A developer could use initial low levies to attract potential buyers, but they could then be forced to increase the levies substantially in the future. However, the law does leave room for annual increases in the levy by a certain percentage.
Should you explore buying from an established village or scheme, make sure to ask about the levy history of the village. There could be a trend of fixed levies thanks to a levy stabilisation fund where levies are often subsidised by the fund because of the profits taken on the resale of units as mentioned earlier. Should the village you are considering have a significant stabilisation fund, regard it as a major benefit.
Acting as a checklist, remember that levies can cover a multitude of services, including municipal rates, electricity, water and sewage, security, garden services, maintenance, housekeeping and laundry, satellite television and refuse removal. Check on the quality of the service, for example, security may mean a security guard walking around the property once a day at one village or 24-hour camera surveillance and gate control at another.
Special levies can also be introduced, even though you are already paying a fixed levy for life. The levy you are paying may not exclude the introduction of a special once-off levy to finance a particular project, such as a new outdoor facility for the benefit of the residents. Be sure to keep yourself updated on these changes once you are a resident, usually via the body corporate or similar legal entity where residents can take part in the decisions of the retirement village.
More factors that need to be considered when looking into a retirement village include the management, lifestyle, accommodation, and healthcare facilities to name a few. Be sure to do the necessary research and before you sign anything, talk to your legal and financial advisors. It can save you heartache and costs in the long run.
As always, it is imperative you seek the advice of your trusted financial advisor and property expert. A certified financial planner and a tax-qualified advisor will be your best help during this last stretch. To get a broad idea of everything you have to consider prior to retirement, have a look at our best-selling book, The Ultimate Guide to Retirement in South Africa, and visit www.retirementplanning.co.za.