Retirement buys – what are the options?

Homeowners who want to buy a retirement property need to consider where they want to retire and the type of property they want to buy, as well as the type of ownership that best suits their needs, says Adrian Goslett, chief executive of RE/MAX of Southern Africa.

“According to statistics, most South African property investors in this life-stage own some kind of property and have sold a property to downsize or move into a more secure environment that is close to amenities such as hospitals and frail-care facilities. Banks are generally reluctant to grant finance to investors who are over 60, so most retirement property purchases, particularly in retirement villages, are cash based.

“Some investors buy their retirement property at an earlier stage as some estates allow investors under the prescribed retirement age to buy property, although they set the age of the residents at 50 years or older. Often investors in these circumstances buy a retirement property and decide to rent it out until they want to live in the estate,” says Goslett.

He says for those who have made provision for their retirement, there are a number of investment options available ranging from entry-level, sectional-title units to luxury houses. Different forms of ownership affect what can be done with the property.

The three ownership options available to investors when buying retirement property are sectional title, share block, and life rights.

The sectional title option in a retirement purchase is much the same as any other sectional title purchase. With this option, registration of the property is concluded through the Deeds Office by a conveyancer and there are the regular costs and fees involved, such as transfer duty and the conveyancing attorney fees.

Owners of sectional title units will automatically become members of the body corporate which will allow them to have a say as to how the scheme is run.

With a share block scheme, a company owns a building and allocates a number of shares to that building which are divided into blocks of shares. The owners of shares in the company have the right of occupation to certain portions of the building. Share block residents therefore own shares in a company and not a section of the building.

In this scheme, the management and directors of the company can make decisions without consulting the shareholders in the block. Unlike immovable property, shares cannot be used as leverage for further investments.

“Share block schemes may be converted to sectional title provided 30 percent of the owners in the scheme vote to convert. After conversion, half the owners must support the resolution. Once the investors take transfer of their units, they will become property owners, instead of share owners,” says Goslett.

In life rights or occupation rights transactions, buyers will have the right to live in the property in terms of the Housing Development Scheme for Retired Persons Act. However, they don’t own the property.

If the investors are married, the life right agreement extends to their spouses, so when either one dies, the other may continue to occupy the property. There are no legal costs, transfer duties or other taxes payable in this option.

“Before making a final decision, investors need to research each of the options and their implications before committing themselves,” says Goslett. “The retirement village or estate should be able to provide all the relevant information about the sale options available.

“Other factors to consider include whether the property will be registered in the buyer’s name or in another entity such as a trust for example. These elements will be determined by the financial situation of the buyer and will include factors such as death duty and capital gains tax.”

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