Finding the right home is probably the most important decision you will need to make when scaling down for retirement. The home you choose will depend on what you can afford and the kind of lifestyle you would like to enjoy.
Another factor to take into account is the impact your decision will have on your estate, says conveyancing attorney and estate law expert, Michelle Dommisse, of Michelle Dommisse & Associates.
The two options for buying a retirement home across all price bands are sectional title or life right, and there are advantages and disadvantages to both.
Sectional title retirement
One advantage is that your heirs stand to inherit an asset that will almost certainly have increased in value over time.
- If your retirement home is a sectional title unit, you may be obliged to sell and move out just when you most need security.
- Buyers of sectional title property are liable for transfer duty or VAT and capital gains tax.
- Over and above monthly levies, sectional title residents may be liable for special levies that cover large-scale renovations, refurbishments, and improvements to security, among other things.
- Sectional title residents are also liable for all costs relating to maintenance, insurance, and security.
- Although sectional title retirement developments may be great in the beginning, as people age they become more conservative and less inclined to spending money on upgrades.
With life expectancy greater than ever before, one of the biggest concerns for older people is that they could outlive their assets. Sadly, even substantial retirement savings might not be enough to support you if you live well into your 80s or 90s.
The purchase of a life right grants you and your partner the security of guaranteed occupation for life. Partners who outlive the life right owners will be entitled to stay on in the life right unit until their death.
A life right home is usually more affordable than a sectional title, as there is no transfer duty payable on purchase. This is because you don’t own the property outright, unlike with a free title or a sectional title property.
With a life right development, the developer is responsible for village maintenance. This means there is no heavy maintenance liability for owners and levies are usually forecast in advance.
When the life right owner dies, there is no capital gains tax payable.
One possible disadvantage is that you don’t own the life right unit outright, so you cannot leave the property to your heirs in your will. However, the full purchase price is refunded to the owner’s estate, with a minimal agreed-upon administration fee.