Buying on Life Rights – is it your best bet?
Although the Life Rights model has been around for decades, and has become increasingly popular among retirees world wide, many people are still confused as to how it works.
Basically, buying on Life rights entitles you to occupy the property for the rest of your life. But the property never actually becomes yours. Ownership remains with the developer or owner of the complex.
More affordable homes
Although you enjoy similar privileges to what you’d have if you bought on sectional title or share block, Life Rights offers a major cost advantage. Because ownership of the property doesn’t change hands, you don’t have to pay transfer fees, VAT, bond registration costs or capital gains tax.
VAT alone on a property selling for R1 million amounts to R150 000, so the savings are considerable. And if you don’t have much cash available, it may mean the difference between living in the home of your dreams, instead of settling for what you could afford if you had to buy a unit outright.
Monthly levies, which cover insurance, interior and exterior building maintenance and upkeep of the grounds and facilities, also tend to be lower than for sectional title units.
In South Africa, Life Right schemes fall under the Housing Development Schemes for Retired Persons Act 65 of 1988, which provides protection for both the buyer and the developer. If the development is brand new, the owner must provide details of the levy payable for the first three years of occupation. Additional or ‘special’ levies are not permitted. With existing properties, such as those owned by Tafta, the levies are not fixed and the amount to be paid, as well as provisions for increases, will form part of your contract.
Most retirement villages offer a range of additional facilities. Daily meals, cleaning services, transport to shopping centres, coffee shops, social activities, exercise classes and on-site nursing care ensure a comfortable and enjoyable lifestyle. Many complexes also offer assisted living, carers or frail care. And that’s important as you age.
What’s not to love?
Because you don’t own the property you can’t leave it to an heir in your Will. For this reason, you may find your children are against the idea, especially if they hope to inherit the family home. You also cannot sell the property.
So, what happens if you decide you no longer want to live in the retirement complex, or your plans change and you want to emigrate or move to another city? Just because you don’t own the property doesn’t mean that it has no value.
Depending on the contract you signed when you bought the Life Rights, you may get back all, or a portion, of the purchase price after refurbishment and selling costs have been deducted. Some schemes even pay out a share of any profit made on the unit. Others reimburse on a sliding scale, deducting a percentage for every year you’ve lived in the unit. In this case, you (or your heirs) could end up with considerably less than the original purchase price.
Read the fine print
Each retirement home or village has its own terms and conditions. You need to make sure you understand exactly what you are getting for your money. In particular, your contract must state the amount you (or your estate) will receive on termination of the Life Right. Tafta Life Rights guarantees the buyer receives 100% of the original purchase price or 80% of the resale price.
Since you don’t own the property you cannot sell it yourself. The sale will be handled by the owner. Depending on the popularity of the estate, it may take time to sell your unit. During this time, you (or your heirs) will not have access to the money you invested. Which could be a problem if you need it to put towards the cost of a new home. In addition, you (or your estate) will have to continue paying the monthly levy until the unit is sold.
Some retirement complexes have a compulsory meal service, where you agree to pay for ten or twenty meals a month. While this may seem convenient initially, if you aren’t happy with the quality of the food, you may find yourself paying for something you don’t want.
Buying on Life Rights as a couple
You and your spouse or partner can enter into a Life Rights contract jointly. In this case, the agreement remains in place until the death of the last survivor. If you and your spouse/partner have different heirs (e.g. you have children from a previous marriage), they won’t immediately be able to inherit anything until both of you have died. Whether you buy as an individual or a couple, you cannot transfer life rights to someone else.
Obviously, you will want to live in a retirement village that is well run and maintained. Look for property where the owner or developer is in for the long haul, has the skills and expertise required to effectively manage all aspects of the complex, and wants to protect their investment in order to make it attractive to future buyers.
A good place to start is by chatting to people who’re already living in the complex. You’ll get first-hand information about the pros and cons.
Bear in mind that popular and smaller complexes may have long waiting lists. Even if you’re not quite ready to move, put your name down as soon as possible. You don’t have to take up the opportunity to purchase if a unit suddenly becomes available.
Security and care services
As we get older and lose strength and mobility, we become more vulnerable to criminals. Does the complex you are interested in have good security? What exactly is provided? Round the clock monitoring of access with guards and a security boom? Guards patrolling at night? CCTV cameras, beams, electric fencing?
What health care services are offered? Will you receive adequate care should you develop Alzheimer’s disease or suffer a stroke? Is the complex wheelchair friendly? Is there a nursing sister on call for emergencies?
Are pets allowed? If you have a beloved dog or cat, it is heart breaking to have to give them up, yet many retirement villages have a no pet policy.
As with any major purchase, there are a lot of questions to ask before signing on the dotted line. Do your homework. Understand your contract. And Life Rights ownership could be the best decision you ever made.