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Monday Sep 28, 2020

'Life Rights' as a retirement option

The pandemic not only changed our lives overnight, it's also introduced new levels of uncertainty about our health, future and financial security and, in an increasingly subdued economy, comfortable retirement is becoming the biggest uncertainty of all for many people.

"With the cost of living skyrocketing and savings dwindling, purchasing quality retirement accommodation in a secure community with the necessary amenities may no longer seem a viable option, especially as most retirees will have to support themselves for an unknown period with only their accumulated capital," says Chris Cilliers, CEO and Co-Principal of Lew Geffen Sotheby's International Realty in the Winelands.

"Perhaps one of the most important decisions that these investors now have to make is the type of sale transaction they choose as these vary greatly and can have far-reaching consequences, both in the short and long-term.

"While most people are familiar with the traditional ownership options like freehold and sectional title investments, Life Rights, the fastest growing scheme on the South African retirement landscape, and an extremely popular retirement model in the rest of the world, offers unique advantages but is often completely misunderstood.

Lisa Stredder, Retirement Property Specialist for the group in the Winelands, explains: "Life Rights is the ideal option for those who would prefer to leave the challenges and costs associated with house ownership, maintenance and sale to others while still maintaining their lifestyle.

"Essentially, it affords the retired individual the right to occupy a unit in a life style estate for the remainder of their life while ownership of the property is retained by the developer.”

"This 'right' is paid for with a capital investment and on relocation or death the unit is ceded back to the development, usually for the initial invested price, and this payment becomes part of the deceased estate.”

"With this, comes a list of continuous services and an ongoing relationship, a partnership for life, as the developer doesn't bow out upon completion as happens with freehold and sectional title retirement schemes.”

"So at the end of the day, retirees who have less capital to invest will benefit from the lower cost investment which affords them a lot more house and services for their money than any other form of purchase and tight monthly budgets will also be eased by lower levies as all maintenance costs are covered by the development."

"The mere fact that the developer maintains ownership and therefore a vested interest in the property's upkeep guarantees maintenance of the exterior of the houses, communal grounds, health facilities and all other amenities on the premises which is a huge benefit to the consumer," adds Cilliers.

"Life Right is not a property investment in the traditional sense of the word, but it's the most secure investment which you can make in terms of your long-term physical and health security, financial peace of mind and continuous care."

"It therefore boils down to the question: Who is to benefit from the consumers hard earned money: the consumers themselves during their golden years or their children through inheritance from their parent's estate after their death?

"It's essential to do your homework, thoroughly understand the Life Rights concept and compare its pros and cons to the other ownership options before making a final decision as it may not suit all investor's long-term financial needs."

Stredder advises, that when consumers are shopping around it is important to always find out how long they can expect to wait for their investment to be refunded in the event of their death or relocation as oftentimes this will only happen when a replacement purchaser has been found.

"This is not an issue in sought-after developments like Val de Vie Evergreen in Paarl which have waiting lists of retirees ready to move in, but in smaller, new or less popular developments it can take months for the life right to be resold and they may well not have enough reserve capital to repay residents investments until this happens."

She adds that although they were expecting a lull in enquiries during lockdown, it appears that the pandemic has fuelled demand for securing  a home at Evergreen where investors know they are assured of a safe, comfortable, supportive and stress-free environment when they need it most.

"In fact, the first phase of 81 units is now sold-out and fully occupied bar two remaining available units and six of the 56 units of the recently launched phase two have been snapped up already."

Stredder believes this is also partly due to the fact that many savvy investors have realised that it makes good economic sense to buy their future retirement home at today's prices.

"If the purchaser wants to buy an Evergreen Life Right home, but isn't ready to move in yet, they can do so and rent out for up to five years, thereby securing their unit at the current price."

Cilliers concludes: "With lower growth figures predicted over the next few years, property ownership for retirees may become less advantageous and with many adult children living overseas, the Life Rights model offers the advantage that the deceased estate of the parent can be settled without the need for a child to come back to SA with the purpose of selling a property.
"There will also not be any Capital Gains Tax payable on any profit which may or may not be realised out of the property sale."    

Evergreen at Val de Vie in Paarl is marketed by Lew Geffen Sotheby's International Realty and the Evergreen Sales Team and units range from R3.45m to R5.5m.


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