With life expectancy on the rise globally, the average, healthy South Africans could find themselves comfortably welcoming their 90th year. However, for many this prospect is a daunting one. As retirement age looms, concerns around affordability, being reliant on others for daily living needs or the loss of independence become real and very valid. Early planning for this stage of life is more necessary than ever.
Life Rights schemes – officially recognised by the Housing Development Schemes for Retired Persons Act of 1988 – first appeared in South Africa in the 1970s and have since rapidly grown in popularity. The scheme gives the Life Right holder the security of tenure for the remainder of his or her life, while enjoying similar privileges to those of homes purchased by sectional or other title. The ‘purchaser’ does not buy the unit outright, but rather secures the right to occupy it for their lifetime, or until they leave the village, while the unit and its facilities remain the asset and responsibility of the owning body.
This relationship ensures that all facilities are regularly maintained and no special levies can be charged. Once the Life Right agreement ends, the unit reverts back to the owner of the village, who is then entitled to resell it, and the initial purchase price is refunded to the Life Right holder or his/her estate upon re-sale of the unit.
“As life expectancy has steadily increased over the years, so too has the risk of outliving ones retirement savings,” says Dr Michael Zipp, CEO of CPOA. “A Life Right has a lesser impact on finances as there are no additional fees at the time of purchase, often making it the more affordable option. While there are monthly levies, the Life Right holder is given a draft levy budget for the first three years of occupation which ensures that there are no hidden costs and allows the Life Right holder to financially plan accordingly.”
While some developers may choose to offer profit share upon re-sale of the unit, Life Right is not a property investment, as there is no asset that grows in value and the purchaser does not stand to benefit financially from the transaction. However, the advantages suit many as it does guarantee a safe place in which to live for the duration of their lifetime.
“On an international scale, Life Right is a widely practiced and sought after retirement model, particularly in the USA which is the world market leader when it comes to retirement villages,” says Dr Zipp. “While the concept is still relatively new in South Africa, we are certainly seeing an increase in popularity with this model as more retirees understand its advantages.”
When comparing a Life Right scheme to sectional title for example, one advantage is that a Life Right is not a property transfer – there are no bond registration fees, no transfer duties and no VAT payable. Therefore the negative effects that such additional costs can have on income and estate values are avoided. Life Rights are also typically cheaper than sectional titles and levies more transparent.
Essentially a Life Right scheme can be viewed as a housing product, an insurance policy and a worry-free existence rolled into one. This is not to say that peace of mind cannot be secured via other schemes, but a well-run Life Right scheme offers all the ingredients for a financially successful, secure, and stress-free retirement.