It’s no secret that South Africans are increasingly ill-prepared for retirement, with inflation steadily eroding their nest eggs while it is becoming more and more difficult to save money at all. However, even retirees who have managed to keep their financial ducks in a row are now faced with challenges, ranging from the lack of suitable and affordable retirement accommodation available, to grappling with the fine print of various ownership models to ensure they choose one that best suits their financial needs and goals.
As unappealing as the concept was to many, until quite recently, the traditional old age home was the main option available to retirees who typically made the move after the age of 65 or when they were no longer able to care for themselves and availability was seldom a problem.
Lew Geffen, Chairman of Lew Geffen Sotheby’s international Realty says: “Nowadays the retirement landscape is very different and modern retirement villages are a far cry from the single-room-with-three-square-meals concept.
“In addition to the standard amenities such as health and frail care, retirees also expect lifestyle facilities and modern, low maintenance lock-up-and-go units that afford them more freedom to enjoy their golden years.
“Based on the precept of offering a quality lifestyle in a secure community for mature people who are still active, many now accept residents from the age of 55 as a growing number of empty-nesters no longer want the responsibility of large homes and prefer to move just once rather than downsize and move again a couple of years later.”
Room to grow
However, despite the spate of development in recent years, there is a shortage of retirement property with developers struggling to keep up with demand.
“The retirement sector of the market was overlooked and undeveloped for many years,” says Geffen, “and although developers have recognised the yawning gap in the market, their challenge is to acquire suitable large tracts of increasingly scarce land at a reasonable price to ensure the units will not be priced above the general housing market in the area.”
He adds that Stats SA’s June report revealed that in South Africa, approximately 8,1% (4.6 million) of the population is 60 years of age or older and, following the global trend, this is expected to rise exponentially as the baby boomer generation (those born between 1946 and 1964) are remaining healthy and active, thus living longer.
However, it’s not only the accommodation options that have changed and perhaps one of the most important decisions that retirees 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.
The four main options are: share block, freehold, sectional title and life rights, the fastest growing scheme in the retirement sector.
As retirees will have to support themselves for an unknown period with only their accumulated capital, this decision can seriously impact their quality of life.
Geffen explains the key differences: “In freehold and sectional title developments, investors own their homes although with sectional title, they are usually required to cede a percentage of their profit to the development if or when they decide to sell. It’s therefore advisable to have an accountant check the financials and the annual report for things like the level of unrecovered debt, whether any loans have been taken out and the level of reserves.
“However, with share block and life rights schemes you to not own the property. In the former, you are a shareholder in a company that owns or has a registered long lease over a property and through a use agreement, the company gives you the right to live in part of the property. You can bequeath or sell your shareholding, but there may be stipulations in the agreement as to who can occupy the property or buy your interest,”
There is still much uncertainty surrounding the newest scheme option, life rights and, whilst it has distinct advantages it also has its drawbacks and may not suit all investor’s long term financial needs.
“Essentially it affords the retired individual the right to occupy a unit in a complex for the remainder of their life while ownership of the property is retained by the development.
“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.
“Retirees who have less capital to invest will benefit from the lower cost investment which affords them a lot more house 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.”
Geffen concludes: “When choosing retirement property, it is essential to do one’s homework and investors should always compare a number of developments, their facilities and their costs and levies. Request and read all the relevant information about each place, ask questions, talk to residents and staff and always check the developer’s track record and reputation.
“And, most importantly, they must ensure that they understand the financial implications of the various ownership schemes, analysing and comparing pros and cons before making a decision.”
By Tracy Bartlett
The full version of this article with additional info can be read here.