Traditionally, care for older adults has been the responsibility of family members and was provided within the family, but the picture has changed and in many countries the children won’t or can’t assist.
It must be stressed that most retirement communities are privately owned and operated, representing a shift from a ‘care as service’ to ‘care as business’ model. Retirees moving to such communities cannot expect to live based on means tests and state grants, should their circumstances change, they will become homeless. In some countries the children will be expected to assist their parents. The children may be taken to court and sued for the debt their parents incur, should they fail in this duty of care.
Retirement is a massive life changing event.
Before you make a major change like selling your house and moving to the other side of the world, remember, by retiring, you are already involved in one major life change. So, try not to do everything at once. Many people find the word retirement to be in some way offensive and will not buy a property in an estate with the word retirement in it. This is a reason why developers will often use the words, mature estate, or senior living as opposed to the term retirement.
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In purchasing a house for retirement-a legal minefield exists, as there are about 20 pieces of legislation in South Africa alone that apply to the elderly. When you buy property in South Africa, you’ll typically need to pay transfer duty plus a registration fee and conveyancing fee. The UK is different with most advanced and transparent deeds registry systems in the world. In UK, it is only at the point of the formal exchange of contracts that the sale become a binding legal agreement. |
You can buy into a sectional title, or you can buy a life right, or have outright ownership of a retirement property. The legal implications and rights on the property will be slightly different for each and every country and situation. All property transactions, throughout the world, have certain legalities that must be observed.
Common to all countries is that the purchase agreement (or referred to as the sale agreement) must be in writing and signed by all parties concerned (the purchaser and the seller).
The seller, or the purchaser, can be represented by an agent. There must be proper authorisation for the agent. If the seller is an agent, they must be a company, close corporation or trust, or have a special power of attorney that complies with the requirements.
The purchaser normally chooses the language of the agreement.
The contract must contain certain information.
If the seller is a developer, the contract must be clear on who the parties to the agreement are. The purchaser and seller must be identified by setting out their full names, identity numbers or registration details and addresses. The seller must set out in the agreement whether he/she is the owner of the land, or if there is another reason that will make him/her entitled to sell the life right in the Retirement Village.
What the purchaser is buying must be clearly described in the agreement. The contract must clearly describe the land concerned with an erf number as well as any applicable unit number. The document must contain precise description as to the legal grounds on which the life right is sold. In other words the period of that will apply to the life right detailed.
The retiree may have money from the pension funds or use savings which can be used for the retirement property. Unfortunately most pensioners will need the equity in their existing property to buy such a property. Banks may loan senior citizens money dependant on income and the ability to pay the loan back.
Some banks provide senior citizens with a covering bond. In a covering bond the prospective purchaser will put up their existing property as security for the loan. If your bank allows this then you can buy off- plan and remain in the existing property until the new property is built. Once you sell their existing property, you will have to pay off the loan.
Before purchasing any property in a retirement village ask questions. If the developer does not have any track record in developing retirement villages, you should be nervous. Ask for information, including audited financial statements, about the developer and ensure a well-known bank is involved as they should do due diligence. If it is a well-known company involved, that has developed many retirement villages, this should instil some confidence, but still ask for the financials. Ensure the developer has the financial resources and the experience to develop the village, and whether it can deliver on what has been promised.
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Helderberg Village in Cape Town South Africa, was originally sold on a shareblock basis. After building 300 of the 500 planned units, the developer ran into financial difficulty and could not complete the promised facilities. Residents raised funds to pay for these facilities, and a new developer bought the right to build further units. |
Check list when looking for a retirement home
Before signing ensure you understand the rules of the development and make sure it is zoned as a retirement village (not a security village) and the constitution of the managing body reflects that the housing scheme is a retirement village.
The rules may include age, visitor and pet restrictions. There may be noise regulations and alteration stipulations.
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In South Africa if a retirement village includes a frail-care facility, it has to be registered with the Department of Social Development and will be subject to the Older Persons Act of 2006. |
Be aware that it is very difficult to compare the value of retirement villages due to the fact there are so many different factors.
Internationally the term, a life right, means you and possibly your spouse will be able to live in the property until you die. This model is also known as the ‘Life Time Lease’ model, while in Europe, the ‘Apartments for Life’ and the USA ‘Life Plan’ model. Life rights gives you assurance you will have a roof over your head providing you can meet the conditions in the contract. The developer carries the responsibility of management, maintenance and upkeep of the property. There is no purchase of real estate but a purchase of the right to live in a specific unit, providing you can pay the levies. Life rights will pay no transfer duty or registration fees as ownership of the unit is retained by the development and is not transferred to the individual as with sectional title. The property itself does not become an asset in the purchaser's estate and therefore cannot be bequeathed to an heir.
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The legislation that applies in South Africa is the Housing Development Schemes for Retired Persons Act 65 of 1988 and section 6 of the Act, a states that a developer may not receive any monies from the sale of a life right in a Retirement Village, unless an architect or a quantity surveyor has issued a certificate, which states that the housing development scheme concerned has been erected in accordance with any applicable officially approved building plans, town-planning scheme and applicable local authority by-laws. The certificate must state that the buildings are sufficiently completed for the purposes of utilization of the life right concerned. The contract must contain a clause that a copy of this Section 6(1) certificate was furnished to the purchaser. Make sure you find out whether the life right is registerable, as well as a statement as to whether the Title Deed of the land has been endorsed. The Title Deeds of the property of which you are purchasing a life right of, should have been endorsed in the Deed’s office on the Title Deed of the property. The Title deed endorsement should note that the property Is subject to a housing development scheme. The Registrar will put a stamp with notes on the original Title Deed, in terms of the Endorsement of Title Deeds Act of 1990. If the developer fails to endorse the Title Deed and proceeds to sell the life right, he can commits and offence and can be fined R 20 000 or even go to jail for 5 years. The Act states that the amount of the purchase price ( “consideration”) must be set out in the agreement plus what the percentage interest is, if any, that will be levied on the purchase price if it is paid off. If the amount is to be paid in instalments, the amount of each instalment must be stated, as well as the dates on which payments must be made. No transfer fees or VAT is involved in the purchase. Costs for communal services and facilities are shared and levies must be calculated two years in advance and made known to the purchaser. |
You must be 50 years plus to be able to buy a life right in a Retirement Village. You will pay a purchase price and in return obtain the right to occupy the property subject to various conditions, for the rest of your life. The home owner’s association or the body corporate will be able to also charge a levy on top of the purchase price. The purchase price can be paid in one amount by the purchaser, or it can be paid off – it will depend on the developer, or seller. Be sure that you read the clause on limitations and rules that may exist that may apply to the life right in an agreement of purchasing a life right in a Retirement Village with extreme caution. Ask yourself if you understand exactly what you are buying, what the life right means, what your rights will be in terms of the life right, what you can and cannot do with the property.
If the seller is not the owner of the land but the owner of the life right itself, the seller must state in the contract who the owner of the land is, and also give the details of the owner and give a statement in the agreement as to where the purchaser, or any interested party can find a document which confirms that the seller has a right to sell the property. The right will be given in an endorsed Title Deed, or a copy of the agreement when the life right in the Retirement Village was originally purchased.
If any services are to be rendered in the Retirement Village where a purchaser is buying a life right, the contract must contain a statement setting out where the services will be delivered, when it will be delivered as well as what the rights and obligations of the purchaser are with regards to those services.
Services to look at would include:
We will look at these items in greater detail in our chapter on health and affordability.
In this type of purchase we find the following risks:
A Life Right is not a property investment and will not provide a financial return on investment. Upon resale of the unit, the outgoing resident (or their deceased estate) receives a percentage of the market-related resale price. The exact percentage will differ between each development but will be in relation to the number of years the resident occupied the unit. Should you die within a year of being in the life right agreement, monies will be lost in the estate.
You will need the money upfront as banks are not keen to grant finance on a life rights property because of lack of security.
A positive in life rights, is a lack of transfer fees, VAT payments and the potential of Capital Gains Tax when a unit is sold on. If legacy capital is not a primary concern, then an investment in a life rights property is a safe and secure way of ensuring you are looked after.
You may not be able to sell the interest in the life right to another party, keeping your money tied up in a place where you no longer wish to be.
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Deidre and Hans, moved down to the coast, when Hans was retired. The estate was a church estate where Han’s mother had lived. Deidre was a housewife with her single daughter staying close by. Hans moved down to fix up the apartment they would stay in, modernising it. Deidre refused to go down and leave her daughter. When their home was sold, she moved in with the daughter in a flat. After a fall out, she moved into another flat. Hans finally refused to pay for these flats and Deidre reluctantly moved to the coast with him. Deidre hated the community and the snakes. Hans was bitten by a snake and the couple moved back to the town in which their daughter lived. They could not afford to give up the life right, and decided they would keep it, but remain in-land for three months and at the coast for a month. Hans at this time had a fall and became increasingly frail. He was found to have prostate cancer. Sickly and in pain, the two had placed their hope in their child, who was now involved in a relationship, in which the new boyfriend, did not wish the parents to play a part. The boyfriend convinced the daughter to move to another country for business success. Hans and Deidre now had to sell the daughter’s flat in which they were living, as the daughter required the money. The couple decided to go back to the coast and try again, as funds were running low. Hans was now a shadow of his former self and was not expected to survive much longer. As a result Deidre made a concerted effort to start a life anew. The couple have now made friends and are far more settled in their coastal home. Deidre enjoys the beach and knows it will be better for her to live in the estate, when Hans passes on. She has accepted her daughter will probably not return to the country. |
The most important advantage of a life rights scheme is the administration and management of the retirement village. The amount retained by the development on a person dying with a life right is usually used to subsidise the number of facilities provided by a retirement village. In practice, if there is a good turnover in the estate, then this stabilises the monthly levy and removes the risk of inflation and drastic increases in levy which could be of great concern to a retired person with a limited income. Unfortunately with people living longer this has become an issue. The result is that monthly fees may increase at higher than inflationary increases and this will constitute a debt to the pensioner.
It is advisable to invest in larger retirement life care centres that benefit from economies of scale. This makes it comparatively cheaper to provide security, healthcare, garden maintenance, catering and cleaning.
There are other ways to purchase retirement care, however these methods do not give a life right to the property. We now will look at sectional title, outright ownership and share ownership as alternatives to a life right purchase.
Sectional title varies between countries. Essentially sectional title is where you buy part of the property jointly with other owners of the building or property. There is ownership of the property and a sharing of the costs. The sectional title owners will be able to sue for recovery of costs should one sectional title owner be unable to pay.
The devil is in the detail of the ownerships can be seen by the following example:
In South Africa, a sectional title means that an individual owns a unit within a communal building and a portion of the communal areas. All common property is owned by all of the owners in the scheme, in undivided shares, based on the owner’s participation quota, and is for the use and benefit of all members of a scheme. An example would include a pool area or a communal garden or the driveway. The rights of use of common property areas can, however, be limited in terms of the rules of the scheme.
A sectional title levy will be given to the entire building or property divided by the sectional title owners on a pro rata basis. In both South Africa and the USA when you purchase a property in a sectional title scheme, you will automatically, by operation of the law, become a member of the body corporate. You will automatically be bound by the rules of the body corporate, whether you were given a copy of them before you purchased/became the owner, or not and regardless of whether you agreed to them or not. The body corporate might be mandated, by the members of the scheme, to appoint a managing agent, who has the expertise to manage the scheme and provide the majority of the services needed for the day-to-day management of the sectional title scheme.
In the UK, where an individual owns a flat or apartment within a complex, the freeholder (who owns the ground the building is built upon) retains ownership of the communal areas. The freeholder installs a management company and the leaseholder is bound to pay for these via a service charge. In the UK, leaseholders are protected by the Leasehold Tribunal, which sets the maximum leaseholders can be charged for services.
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In South Africa there is a difference between a housing scheme for retired persons and a development which is a Sectional Title scheme in terms of the Section Title Act, Act 95 of 1986. If there is a bond on the property, the seller must give clear details of who the bond holder is, what the name, address, registration details and amount of the bond are. |
Sectional title represents a real asset in the estate. The sectional title interest can be sold, or leased according to the body corporate rules. A sectional title purchase offers no lifetime guarantee. If older residents outlive their pensions, they might find themselves in a position where they are forced to sell up and move. A sectional title purchase in a retirement complex, with frail-care facilities is the best way to own property under this scheme for the pensioner. Some financial institutions offer what are known as reverse mortgages, which enable pensioners to unlock the cash value of their properties in the sectional title scheme, to cover monthly costs. Repayment can be delayed until you die and the property is sold.
Sectional title investment carries similar risk to outright home ownership, and additional risk in the management of the sectional title scheme itself. Sectional title residents are also liable for all costs relating to maintenance, insurance, and security – costs which are not applicable in life rights developments.
If a building is bought in the name of a company, then often shares are sold to enable the owner of the shares, or their appointees, the right to live in the building. A sale agreement is still a requirement for the valid sale of a share block unit. This type of investment will normally have to be done on a cash basis. Banks dislike financing share block schemes. Management rules are normally drawn up and a shareholder levy is required for maintenance and other costs.
In South Africa, transfer duty is still payable on the purchase price to the Receiver of Revenue, for both natural persons and legal entities in such a scheme. A share block transfer is however not registered in the Deeds Registry. The Share Block Control Act 59 of 1980 regulates the operation of a share block scheme. The shares are property in the estate.
The least common method in specialised retirement housing is outright ownership.
If you are the sole owner of the property, or own it in conjunction with a child, spouse or other partner, then you have straightforward property ownership, where you are registered as the owner of the property.
Owning a property means you have costs to own that property, these may include conveyancing, municipal, insurance and maintenance costs. On death, the property is an asset in the estate. The property is able to be used for home equity release loan, or reverse mortgage loan. Such a loan is extended as a lump sum or multiple payments to borrowers who are over the age of 65, in terms of which residential property is offered as security for the loan which is not ordinarily repayable for the lifetime of the borrower. In the event of the proceeds on the sale of the property being in excess of the value of the loan, either the estate or the owner of the property will receive this amount. The reverse is also true, where the estate or the owner of the property will have to pay in to the bank any excess amount, not met by the sale of the property.
You can also buy a property in the name of a legal entity such as a company or a trust- however there are certain requirements on the sale of the property, such as taxes, that may be more excessive than buying in your own name as a natural person.
Ownership of any property will be subject to location risk, where the area downgrades to an extent that the property becomes unsalable, or the market does not support the intrinsic value of the property. It also will tie up capital.
In general, most retirement village operators are run for profit, but there are some charitable organisations. Most countries have some form of old age homes, for those who cannot afford other living arrangements.
In some countries, people who have minimal savings or other asset, are provided with care either in their own home (from visiting carers) or by moving to a residential care home or nursing home We found these are often, if not run by the state, have a religious group affiliation. The Methodist church for example, have such homes.
For pure state run facilities, social welfare, or local municipality offices is normally the first step to approach for this need. You have to contact the relevant department of a social development office, to find a residential unit or care giver and have a means test, to be considered.
The criteria for residential homes and frail care beds, is strictly monitored and often in short supply. Most countries have waiting lists. Many states will expect a means based contribution to the facility. Normally fairly basic accommodation is provided and often these places tend to carry some form of stigma, often undeserved.
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Beatrice was divorced by her husband in South Africa, after they were forcibly removed from their farm in Zimbabwe. The couple were married in Malawi and Beatrice therefore had no rights to the conjugal estate, despite the fact that she had worked hard to build a life, first by washing windows and then by building small businesses, using the pitifully small amount they had managed to get out of Zimbabwe. She was effectively broke with very little funds after the divorce and a strong dislike for living on charity. Beatrice applied to the municipality for help and was allocated a small one roomed flat, on the third floor of a building in Alberton. Beatrice was able to receive a small pension and her daughter contributed what she could to her living expenses. Beatrice would refuse money, so her daughter bought her groceries which she would share with those less fortunate. Her granddaughter also helped with making sure she had good quality appliances, contributing to her healthcare and ensuring she had a reliable car. Friends helped with arranging trips away for her from the complex, allowing her an active social life, despite her reduced circumstances. Although little care was given by the authorities to the residents, Beatrice became extremely active in running the building and was able to live happily in the complex until her death. She considered herself lucky, as among those she helped she found tremendous hardship. She asked us to include what she found as she wanted to let people know.
Beatrice found the saddest story was when one Christmas day she tried to take those who had no family to her daughter’s house for Christmas lunch. Most the old ladies refused to go as they were scared they would miss their children’s calls. They sat by the phone the whole day. Most of them had no food in their house to eat and yet they still believed a phone call would come from that son or daughter. Beatrice said having money would have been nice, but having love was far nicer.
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The eternal hunt for summer, was introduced to us by pensioners in the USA and Canada. In North America the term used is Snow bird for these people. Pensioners relish the freedom to follow their interests, which include birdspoting, boating, water sports, kayaking, horse racing, shopping, and golf. Some people hire or buy homes in these warmer climes but there are those who have to reduce their expectations.
As a result there are many pensioners who decide to rent out or sell their homes for extra income and take to their mobile home for living.
Life in a mobile home is simplified, diets change and the lack of stress and increase in exercise, adds years to one’s life. Children and grandchildren are able to visit and holiday with the parents in certain areas.
Fortunately this is a way of life that can be done fairly cheaply, as many mobile home, caravan and camping parks actively encourage the occupation of otherwise empty stands, especially out of season. In high seasons this way of life becomes less easy.
Campsites vary in price but this pricing also depends on what you like. Most parks will want you to stay at least a month, to qualify for special pensioner rates. That means every month you could have new places to see, people to meet and the joy of living in nature. Many mobile homes or caravans are equipped with a full kitchen and shower. On hand ablutions make life easier. If the mobile home does not have such ablutions, life will mean shared ablutions and a prolonged exposure to showers with cold walks in winter or in rain.
The benefits of a gypsy life are:
The drawbacks are:
Each country has different aspects to the gypsy life. You should definitely be healthy, fit and experienced campers. You need lightweight, aluminium camp chairs and tables. A reliable tow vehicle is a must and possibly ensure you have Automobile Association coverage. Insurance should be taken out for both caravan and car. Insurance and fuel will be the most expensive item on the monthly budget.
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Johan and Mary have a caravan and love it. The couple have rented out thei
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