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Understanding your retirement home options

Including the pros and cons you need to consider.

Choosing a retirement home is an important decision and getting it wrong can have adverse effects on your finances especially at this stage of life. Choosing whether to downscale to a lock-and-go freehold home, buying into a life rights village, or opting for sectional title unit are decisions that require careful thought and consideration. Each come with their own set of advantages and disadvantages and should be considered in light of your unique circumstances.

OWNERSHIP 

Freehold property: As with any property purchase, downscaling to a smaller freehold property that suits your retirement lifestyle means that you will have full ownership of the property. As the title deed holder, the full rights and responsibilities of property ownership will rest with you, which is something that many retirees find overwhelming and difficult to manage as they grow older. As the purchaser of the property, you will be liable for bond registration costs (if you require a bond), transfer duties and conveyancing fees, which can amount to a sizeable capital outlay.

Section title: Buying a unit in a sectional title complex means that you will acquire full ownership of the unit. As such, the registration of the property takes place through the Deeds Office and, as in the case of purchasing a freehold property, you will be responsible for the bond costs, transfer duties and conveyancing fees. Although you will be the titleholder of the property, it is the body corporate who will be responsible for the day-to-day running of the complex and communal facilities, although you would retain responsibility for looking after certain aspects of your unit.

Life rights scheme: Ideal for those with less capital invest, buying into a life rights scheme involves purchasing the right to use the unit for the remainder of your life. As such, ownership of the property does not transfer to you and there are no bond or transfer costs involved. Your life rights contract provides you with the legal right of occupation, and this right will fall away in the event of your death. The developer remains solely responsible for the maintenance and upkeep of your unit, making this a hugely appealing option to retirees who no longer want the hassle of DIY and upkeep. As the transaction involves no transfer of ownership, no financing options are available for life rights purchases.

MANAGEMENT

Freehold property: As the sole owner of the property, you are wholly responsible for the management of your property which includes payment of rates and taxes, utilities, maintenance and upkeep, security, and insurance. If you have any physical disabilities or have ailing health, bear in mind that the maintenance and upkeep of a property as you age can become burdensome.

Section title: The governance of a sectional title complex takes place via a body corporate which is required to be set up in terms of the Section Titles Act of 1986. Consisting of unitholders, the body corporate is responsible for the day-to-day running and financial management of the common property. While this can be advantageous, body corporates are sometimes slow to make and implement decisions which can lead to frustration. It is important to bear in mind that, once the developer has finished building the complex, he has no further responsibility for the ongoing maintenance and cost management, and this responsibility falls on the residents represented by the body corporate structure. As the titleholder of your unit, you are responsible for maintaining your unit and garden which means that some DIY and maintenance will be required on your part.

Life rights scheme: One of the main attractions of a life rights scheme is that the developer assumes full responsibility for the maintenance and upkeep of the entire complex. As the owner of the complex, the developer is incentivised to keep the facilities and amenities in their village at a high standard to ensure continued clientele into the future.

LEVIES 

Freehold property: As the owner of a freehold property, you will not be liable for any levies, although you will naturally remain responsible for the payment of your monthly municipal and utility bills.

Section title: In terms of the sectional title legislation, the body corporate sets the levies at their annual general meeting following budget approval. The levies paid by residents are used to cover the upkeep, security and maintenance costs of the complex’s communal property. As these levies are set annually, there is always the risk of unpleasant annual levy increases. If the body corporate needs more money, they are further entitled to raise a special levy which can be used to cover the costs of necessary expenses which cannot wait until the next financial year.

Life rights scheme: As a life rights holder, you will be responsible for the payment of monthly levies although these are generally much more transparent than in the case of sectional title. Monthly levies and administration costs are generally lower in a life rights scheme, and developers are obliged by law to provide a two-year cost estimate in respect of levies, making it easier for retirees to manage their cashflow. 

DEATH

Freehold property: In the event of your death, your immovable property will form part of your deceased estate and you are free to bequeath the property to your nominated heirs. For those wanting to leave property to their loved ones as part of their legacy, this remains an appealing option.

Section title: As in the case of freehold property, your sectional title property will form part of your estate on death and can be bequeathed to your heirs in terms of your will.

Life rights scheme: In the event of your death, the right to use your life rights unit reverts to the owner of the complex who can then resell it. Upon the resale of the unit, the proceeds will be paid over to your deceased estate. Bear in mind that the amount paid over to your estate will be in accordance with the refund calculation in your life rights agreement, so it is important to understand the terms of your agreement when signing up for your unit.

DISTINCT ADVANTAGES AND DISADVANTAGES

Freehold property: The maintenance and upkeep of freehold property is a deterrent for many retirees, especially those who are looking for a more hassle-free retirement. If you are forced to sell your home at a later stage – for instance, to free up capital or as a result of ill-health – bear in mind that an urgent sale could negatively impact the sale price of your property. Another distinct disadvantage is that you would need to make provision for any frail care or home-nursing needs, and this can be particularly expensive, particularly if required full-time. On the other hand, owning your property means no restrictions in respect of pet ownership, the ability to enjoy your personal space, and freedom to bequeath the property to your loved ones.

Section title: Sectional title living provides a good blend of communal living, security and personal living space, although it does still come with the responsibility to maintain and upkeep your unit. A major drawback to this option is the relatively high levies, body corporate politics, and the raising of special levies which can make budgeting a challenge. Certain complexes allow pets, so be sure to do your research before buying a sectional title property.

Life rights scheme: Possibly the biggest drawcard when it comes to this form of living is that the life rights holder has no obligation to maintain and upkeep his unit. Other distinct advantages include onsite nursing and medical care, frail care facilities, entertainment, relatively low levies, prepared meals, and excellent security. On the downside, every life rights agreement is different so it is important to know exactly what you are paying for when you purchase your life right – specifically when it comes to the developer buying back your unit should you pass away.

ADVISOR PROFILE

Gareth Collier

Crue Invest (Pty) Ltd

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