3 CONSIDERATIONS FOR PURCHASING A RETIREMENT HOME
For those who are reaching their golden years and are looking to purchase a retirement home, there are several aspects to consider, including the financing of the property, the type of property they want to stay in, and the type of ownership they want to undertake.
Banks are often reluctant to grant finance to investors who are 60 years old and older, which is why the majority of property purchases in retirement villages are cash buys. Many investors often decide to purchase a retirement home before they turn 60 years old. Certain developments allow investors to buy a home under the prescribed retirement age, even though they set the age of the residents within the development at 50 years old and above. In some cases, investors will purchase a home within a retirement village and let it out until they reach the minimum age required to live there themselves.
Choosing a form of ownership
There are a few ways in which investors can purchase a home in a retirement scheme. The different forms of ownership play distinctive roles in what the investor can do with the property, so it is vital that they understand what each scheme offers. The three options available when purchasing retirement property are:
1) A sectional title scheme
Buying a sectional title retirement home works the same way as any other sectional title purchase. This option will be the most familiar to property investors, as the purchase process follows the regular channels. Registration of the home is concluded through the Deeds Office by a conveyancer. All the regular purchasing costs and fees involved will apply, such as transfer duty and the conveyancing attorney fees. Once the property is transferred into the investor’s name, they will automatically become a member of the body corporate which will allow them to have a say in how the scheme is run.
2) Share block scheme
Within a share block scheme, a company will own a building and allocate some shares to it which are divided into share blocks. Company shareholders will have the right of occupation to certain portions of the building. In this instance, the resident owns shares in the company that owns the building and not the building itself. Unlike a sectional title scheme where residents have a say in what happens with the development, in a share block scheme, the management and directors of the company can make decisions without consulting the shareholders. A possible disadvantage is that the shares cannot be used to leverage further investments. However, if the investor owns an immovable property, it can be leveraged.
Top Tip: There is the possibility for a share block scheme to be converted to sectional title scheme provided 30% of the owners in the scheme vote to convert and after conversion, half the owners support the resolution. If this occurs and the investors take transfer of their units, they will become property owners, rather than share owners.
3) Life rights or occupation rights
In a life rights scheme, the investor is not purchasing a property, but the right to live in the property. Life rights do not give the purchaser ownership of the property, but merely the right to occupy that specific property for the rest of their life, under the Housing Development Scheme for Retired Persons Act. If the investor is married, the life right will extend to both the primary investor and their spouse, which ensures that if either pass away, the other may continue to remain in the property. Because the ownership of the property has not transferred, there are no legal costs, transfer duties or tax payable in this option.
Before making a final decision, investors should research each option thoroughly, giving careful consideration to the implications of each option before they commit. Investors will be able to get all the relevant information from the retirement village or estate they are interested in buying in. Before going ahead with the deal, investors should have all the documentation checked by an attorney to ensure that everything is in order – errors could be very costly, especially when living on a fixed income. If you have any queries, consult with a financial advisor or real estate professional with extensive retirement property experience.