Life Rights is an increasingly popular form of ownership for many potential retirees. What it boils down to is that you pay a capital amount for an investment in a retirement village. However, you don’t pay special levies, body corporates and managing agents for the management and the upkeep of the estate as a whole. The pay off is that once your right is sold, you don’t share in any capital gains. This right is for the rest of the owner’s life – so it’s like a lease agreement for life that you pay upfront for. Sectional Title ownership is better known among the non-retirement crowd and offers a bricks-and-mortar unit, along with capital gains and levies.
Arthur Case, the Brand Marketing Director at Evergreen Lifestyle, makes the case for the Life Rights models.
Evergreen Lifestyle only develops Life Rights villages. We have six villages in operation: Muizenberg, at Lake Michelle, Noordhoek, Bergvliet, Diep River and Broadacres (Gauteng) with new villages being established at Val de Vie in Paarl and Sitari near Somerset West. We also have land holdings in Umhlanga, Zimbali Lakes, Hilton and Port Elizabeth for future development. We plan to grow to 10 000 units over the next ten years. The demand is there.
There are many reasons why life rights are a great solution for retiring middle and upper-middle-income South Africans. Here are just a few:
- This is the premier retirement model in North America, Australia and New Zealand and is gaining popularity in parts of Europe. It is therefore tried and tested.
- The life right developer remains committed literally for life and is incentivised to look after both the asset and his customer, the life right holder. There are therefore no perverse incentives in this model. By contrast the sectional title or freehold developer is usually gone after the last unit sells leaving the retirees to run (self-manage) the village via anHOA or body corporate, who in turn must employ a managing agent or run the estate themselves! This has so many implications that I could unpack, but in essence, do you wish to run a retirement estate when you are retired and ageing? This is at the heart of the attractiveness of the Life Right model. The Life Right developer manages security, maintenance, garden landscaping, finance and administration, estate management, food and beverage, statutory requirements, healthcare and more. At Evergreen we call this a partnership for life.
- TheLife Right model offers the financially strong developer enormous flexibility e.g. to offer flexible pricing by reducing the purchase price as well as the return capital to suit certain purchasers or to liberate emergency capital for the Life Right holder to fund, say levy arrears or care centre costs during his tenure. In a Sectional Title village, you would need to sell your home to liberate emergency capital!
- There are no special levies in aLife Right model (it’s prohibited by the Housing Development Schemes for Retired Persons Act No 65 of 1988). Will the retiree have free capital for the inevitable special levies in a sectional tile scheme?
- No VAT or transfer duties.
These and many other financial and individual benefits make the loss of capital growth on the purchaser’s property asset a ‘fair exchange’ for many South African seniors. With regard to demographics and the economy, I believe that the Life Rights model offers comfort in times of uncertainty.
A Life Right is not a financial investment and we make that clear to purchasers at the start. It’s an investment in a safe and secure retirement lifestyle. The value proposition in New Zealand and Australia is so strong that they return capital less a deferred management fee (DMF) which means that the estate will get back original capital less between 20 – 30%. Life Right holders and their families in these countries see this as a fair exchange.
Those purchasers who wish to leave more legacy capital have the freehold or sectional title retirement village option to select, so purchasing a Life Right is an informed choice. More and more South Africans are seeing the benefits of the Life Rights and some developers who previously railed against the model are now adopting it. South African seniors can choose between the Life Rights, sectional title, freehold, share block and rental models and can evaluate the merits of various commercial developers and NGO’s who offer retirement accommodation. Informed choice is important.
The Life Rights developer takes a long–term view of the investment’s Return on Interest. With our shareholders, the AMDEC Group and the PSG Group, we take the long view which I believe is in the interests of purchasers and provides them with financial peace of mind.
The Benefits of Life Rights
- No monthly bond repayments or rental costs as you make an upfront payment.
- When you or your partner pass away, the surviving partner continues to live in the unit
- You have a ‘real right’ in the eyes of property law and are guaranteed the right to live in the property
- If you remarry, your new spouse may occupy the unit with you, but will not have any rights to the life-right ownership
- You act as a lessee, so any maintenance to the property is the responsibility of the property developer
- Upon death of both owners, the purchase price is refunded, usually at 100%
- Re-sale is the responsibility of the developer, so there’s no concern when it comes to selling the property upon death of both spouses
- Life Right proceeds can be nominated to a beneficiary (your children for instance) and doesn’t qualify for the normal deceased estate rules and red-tape