For many, growing old may seem like something that’s reserved for other people – a mere notion that’s a lifetime away. Yet, sooner or later, age catches up with everyone. But whether or not you live out your golden years in comfort at a place of your choosing depends very much on the decisions you make today.
Aside from the financial implications that come with old age, Neil Fuller, Broker/Owner of RE/MAX One points out that consumers also need to give serious thought to what their living arrangements will be.
Says Fuller: “Many retirement villages throughout the country have an exceptionally lengthy waiting list which means that people spend years waiting before they can actually move into their home of choice.”
Demand outstrips supply
The fact that the existing supply of retirement units is not meeting the current demand is also exacerbating the issue, which is why Fuller and various other property market players are now teaming up with developers to introduce retirement developments such as Glendowner Manor on Gauteng’s East Rand to the market.
But what type of retirement accommodation is best? According to retirementplace.co.za, selecting the correct property for your retirement is not simply a matter of downsizing but should form part of a comprehensive retirement plan which takes into consideration the financial implications of the various options in relation to retirement income and lifestyle.
Your options
There are essentially three different retirement options available to South Africans: sectional title, share block and life rights.
Those who buy into sectional title schemes obtain ownership of a unit or residence by means of a title deed registered with the Deeds Office, which entails transfer duties and conveyancing costs. Most South Africans are already familiar with this model as many developments are sold along these lines. Once built, developers are not responsible for the on-going maintenance and cost management of the development. These duties are undertaken by the residents.
In share block schemes, owners do not obtain exclusive titles to the unit they have “purchased”. Instead, they obtain shares in the company that owns the residence. In this way, owners are entitled to the use and occupation of the unit and the costs involved are theoretically minimised.
Transfer duties
That said, although share block transfers are not registered with the Deeds Office, transfer duty is still payable and shareholders have to contribute towards a levy fund to maintain the property. Potential buyers may also have difficulty raising capital for such a purchase as financial institutions may deem that there is insufficient security to back it.
Life rights purchasers do not purchase a unit but secure the right to occupy the unit for the rest of their lives. The unit and the associated facilities remain the asset and responsibility of the developer. As such, the developer has a vested interest in maintaining the development. One of the key advantages of life rights is that there are no bond registration fees, transfer duties or VAT payable. Stable, predictable levies are another plus.
However, upon death, the owner’s estate will only receive the amount originally paid for the unit (less selling and refurbishment costs) as well a percentage of the net profit which may not be to every investor’s liking. In some instances the amount paid out also depends on the length of time spent at the development.
Buy-to-let
As for investing in property to prop up your retirement, some investors are all for it saying that buy-to-let property investment is effective as it provides both solid and on-going capital growth over the long term and a passive, inflation linked monthly income. Others such as Magnus Heystek, an investment strategist at Brenthurst Wealth are advising owners to sell their investment properties citing poor returns and ever-increasing costs and fees. His interesting take on the matter can be read via this link.
Whatever the case, plan well in advance, start saving and ask plenty of questions when looking at your retirement options.
