A dog’s life

Housing is a key consideration for your retirement planning.  And as with anything related to retirement planning, your housing arrangement as a retiree depends on your unique situation.

For example, if you’re calculating your future expenses to determine your income replacement ratio (IRR), do you need to include paying off a home loan or paying monthly rent? Are you planning to downsize from a big family home and move into a retirement complex? What if your health takes a turn for the worse and you require the assistance of a full-time carer or need to move into a frail care facility?

Thinking about the impact of these variables can cause tremendous uncertainty and anxiety. However, being aware of the cost implications of each can provide a bit more clarity in your decision-making.

Retirement complexes 

In South Africa, only around 2,5% of individuals over 60 reside in retirement complexes – an option that is simply too expensive for many retirees.

However, if this is a potential option available to you, what are the general costs you should keep in mind? Well, it depends on whether you’re buying or renting. Many retirement villages offer rental options, while purchasing options can take the form of life rights, share block, or sectional title. Here’s a quick breakdown:

Life rights

This is a very common option. You’re essentially buying the right to live in the unit for the rest of your life (and your partner or spouse’s, if applicable). You don’t own the property itself, but you have exclusive use of it. Developers of the retirement complex retain ownership, handling maintenance and upkeep – which is a great benefit to residents. Upon the retiree’s death (i.e. the second partner or spouse who passes away), the unit reverts to the developer for resale, with the estate receiving a portion of the original purchase price.

Life rights cost considerations 

• No ownership: As you don’t own the property, you won’t benefit from any capital appreciation.
• No transfer costs: A life right purchase in a retirement village avoids many of the upfront costs associated with traditional property ownership. Since you’re not actually buying the property, there are no transfer fees, bond registration costs or VAT to pay, making it a more financially accessible option.
• Levies: You’ll be required to pay monthly levies. These cover the running costs of the complex.
• Financial risk: The financial stability of the developer or managing company is crucial, as your life right depends on it.

Share block

Share block schemes offer an alternative to sectional title ownership in retirement villages. Instead of owning property, retirees purchase shares in a company that owns the village, gaining the right to occupy a unit through a Use & Occupation Agreement. Shareholders don’t directly manage the complex; the company directors handle this. Shareholders pay levies for running costs and are responsible for unit maintenance and contents insurance.

Share block cost considerations:

• Financing: Getting a loan to buy into a share block scheme can be challenging, as banks often don’t provide finance for this type of purchase. This means you’ll likely need to have the cash available.
• Transfer duty: As no legal title to the property is transferred, there is no need to pay transfer duty.
• Legal fees: You’ll likely need a lawyer to review the share block agreement and other legal documents, which will incur legal fees.
• Levies: You’ll be required to pay monthly levies. These cover the running costs of the complex, including security, maintenance, and staffing.
• Unit maintenance: You’ll be responsible for the maintenance and upkeep of your own unit, including any repairs or renovations.
• Contents insurance: While the share block company insures the building, you’ll need to take out your own insurance to cover the contents of your unit.
• Resale: When you want to sell your unit, you’re essentially selling your shares in the company. The process and costs involved can differ from selling a traditional property.

Sectional title

This is similar to buying a regular sectional title property. You own the unit (your ‘section’ of the property) outright, and you’ll be part of a body corporate responsible for the building’s maintenance. This option involves transfer fees, bond registration costs (if applicable), and VAT.

Other common costs

These costs can also come up, depending on the ownership type.

• Application fees: Some villages charge a non-refundable application fee to process your application.
• Levies: Monthly levies can be significant and may increase annually. Inquire about what exactly is covered by the levy and what isn’t (e.g., water, electricity, garden maintenance, security, meals, healthcare).
• Special levies: These are unexpected levies charged for major repairs or upgrades to the village, payable in addition to the regular levies.
• Care costs: If you might require assisted living or frail care in the future, inquire about the costs involved and how they are calculated. Some villages have a sliding scale based on the level of care needed.
• Exit fees: Some villages charge a fee when you leave the village, whether due to selling your property or passing away. This fee might be a percentage of the sale price or a fixed amount.
• Renovation costs: If you want to make changes to your dwelling, you might need to obtain approval from the village management and bear the costs yourself.
• Additional services: Some villages offer optional services like meals, laundry, cleaning and transport, but these usually come at an additional cost.
• Healthcare: Some villages have on-site medical facilities or partnerships with healthcare providers, but these might not be covered by your medical aid. Some villages grant residents a few of days per year in their care centre free of charge.
• Insurance: You will need to have adequate insurance for your belongings and any personal liability.

Tip:

Because banks often hesitate to finance buyers over 60, most retirement village purchases are cash transactions. Many investors buy before 60, sometimes even purchasing and renting out units until they reach the village’s minimum age requirement.

This is a general outline of potential costs of moving to a retirement complex to help you plan and ask informed questions. Always check and compare costs and fees, as they may differ from this general outline.

Saving for retirement is the biggest investment most of us will ever make. Sadly, it can also be very complicated. In this monthly blog, Carina Jooste responds to common retirement questions, ranging from which products are best suited to different circumstances to efficient tax treatments.