Choosing your retirement scheme

“South African investors have a large number of options available to them in terms of retirement communities and villages that they can buy in to, ranging from unassuming entry-level properties to luxurious homes.

There are also different options that investors have as to how they choose to purchase those properties, and when it comes to buying into a retirement scheme, the legality of ownership can be a significant factor,” says Goslett.

The three options that investors have available to them for buying retirement property are:

1. Sectional Title

This is an option that most property investors are familiar with and is the method of purchasing the property through the normal channels. Registration of the unit is done through the Deeds Office by a conveyancer and there are the regular buying costs involved, which include transfer duty and conveyancing costs.

2. Share Block Scheme

A company owns a building and allocates a number of shares to that building that are divided into share blocks. This provides the owners of shares in that company with the right of occupation to certain portions of that building. A share block resident therefore owns shares in a company and not a section of the building itself, therefore the costs involved are minimal.

3. Life Rights or Occupation Rights

These rights do not give the purchaser ownership, but rather the right to occupy a particular property for the rest of their life, and fall under the Housing Development Scheme for Retired Persons Act. This right extends to both parties in a marriage or partnership so if either one dies the other continues to remain in occupation. There are no legal costs, transfer duties or tax payable in this option.

Goslett advises investors to research all the implications of each scheme before signing on the dotted line. “Request relevant information from the retirement village or estate and go over it carefully, and, if in doubt it is best to seek advice from a financial advisor or real estate professional that focuses on the retirement market. It is also imperative to have all documentation of the transaction approved by an attorney, as mistakes could prove to be costly in your golden years, especially when living on a fixed income,” he says.

According to Goslett, other factors to consider would include whether the property will be registered in the buyer’s name or in another entity such as a trust for example. This will be determined by the financial situation of the purchaser and will include factors such as Death Duty and Capital Gains Tax.

Statistically most property investors in this life-stage currently own some kind of property and have sold the property to downsize or move into a more secure environment that is close to amenities such as hospitals and frail-care facilities.“Some investors do choose to buy their retirement property at an earlier stage as some estates allow young investors to purchase property there, although they set the age of the residents at 50 years or older. In many instances these investors buy a retirement property and chose to rent it out until they are ready to move into the estate themselves,” says Goslett.

He says that the majority of retirement property purchases, particularly in retirement villages, are on a cash basis as banks are generally reluctant to grant finance to investors who are over the age of 60. “Making wise property investments from the beginning will give investors the best chance of being able to afford their perfect retirement home when that time comes,” Goslett concludes.
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