Selecting the right retirement home is an important decision, as the wrong choice can impact your finances later in life. Whether downsizing to a lock-and-go freehold home, purchasing in a life rights village, or opting for a sectional title unit, each option has distinct pros and cons. Here’s what to take into account when assessing your retirement accommodation:
(i) Ownership
Freehold property: Downscaling to a smaller freehold property offers full ownership, with the title deed registered in your name. This grants you complete ownership rights over the property but also places the full responsibility for maintenance, rates, and security on your shoulders. For many retirees, managing these obligations can become increasingly challenging with age. Additionally, if financing is required, you will be liable for bond registration costs, transfer duties, and conveyancing fees, leading to a significant upfront financial commitment.
Section title: Purchasing a sectional title unit also grants you full ownership, with the property registered in your name through the Deeds Office. Like freehold properties, you’ll be responsible for bond costs, transfer duties, and conveyancing fees. However, the day-to-day management of the complex and communal areas falls under the body corporate’s jurisdiction. While this eases some of the maintenance burdens, you’ll still need to manage and maintain aspects of your individual unit. On the other hand, sectional title living often provides a sense of community and added security, which many retirees find appealing.
Life rights scheme: For those with less capital or seeking minimal responsibility, life rights schemes are an attractive option. Instead of purchasing the property, you buy the right to occupy the unit for the rest of your life. No bond registration, transfer duties, or conveyancing fees apply, as ownership remains with the developer. The developer is responsible for the unit’s maintenance and upkeep, offering retirees a hassle-free living environment. However, since no ownership is transferred, financing options are unavailable, and the right of occupation ceases upon death.
(ii) Management
Freehold property: Owning a freehold property means you are solely responsible for all aspects of its management including rates and taxes, utilities, insurance, and ensuring the property’s security. Additionally, you must handle all maintenance and upkeep, both inside and outside the home. For retirees facing health challenges or physical limitations, these responsibilities can become increasingly difficult over time, potentially leading to added stress and financial strain.
Section title: Sectional title complexes are overseen by the body corporate which is responsible for the financial management and day-to-day management of shared spaces. While this shared governance can alleviate some individual responsibilities, delays in decision-making by the body corporate can be frustrating. It’s also important to note that once construction is complete, the developer holds no further responsibility for the property’s upkeep, and this shifts to the residents. As a unit owner, you remain responsible for the maintenance of your own unit and garden, requiring occasional DIY work.
Life rights scheme: A key benefit of life rights schemes is that the developer retains full responsibility for the maintenance and management of the entire complex. Since the developer owns the property, they are motivated to maintain high standards for facilities and amenities to attract future residents. This arrangement offers retirees a low-maintenance lifestyle, with the assurance that communal areas will be well cared for without personal involvement.
(iii) Levies
Freehold property: Owning a freehold property means you are exempt from paying levies, but you remain responsible for municipal rates, utility bills, insurance, and general upkeep. While this grants full control over your property, it also places the burden of all maintenance, security, and related costs on your shoulders. For retirees, these responsibilities can become increasingly demanding over time.
Section title: Purchasing a sectional title unit involves paying levies set annually by the body corporate, following budget approval at the annual general meeting. These levies cover communal property upkeep, security, and maintenance. However, residents face the possibility of yearly levy increases, and the body corporate may impose special levies for urgent, unforeseeable expenses. While the body corporate manages shared areas, you remain responsible for maintaining your individual unit and garden.
Life rights scheme: Life rights holders are also responsible for monthly levies, but these are typically lower and more transparent than in sectional title schemes. Since the developer maintains the entire complex, this option offers a hassle-free, low-maintenance lifestyle.
(iv) Death
Freehold property: Upon your death, your immoveable property will become part of your deceased estate, and you may choose to bequeath it to your designated heirs. This provides individuals with the opportunity to leave a lasting legacy through property ownership, making it a desirable option for many.
Section title: Similar to freehold property, a sectional title property will also form part of your estate upon death. You may bequeath this property to your heirs as outlined in your Will, ensuring that your wishes are respected, and your property is passed on according to your preferences.
Life rights scheme: When you pass away, the right to use your life rights unit reverts to the owner of the complex, who can then resell it. The proceeds from the resale will be paid to your deceased estate, but the amount will be subject to the refund terms specified in your life rights agreement which vary from one complex to another.
(v) Distinct advantages and disadvantages
Freehold property: For many retirees, the maintenance and upkeep of freehold property can become a significant deterrent, especially those seeking a more manageable retirement. If you are compelled to sell your property later, whether to release capital or due to health issues, an urgent sale could negatively affect its market value. Additionally, you will need to make provision for any frail care or home-nursing requirements, which can be costly, particularly if full-time care is needed. On the plus side, owning your own property offers the freedom to enjoy personal space without restrictions on pet ownership, as well as the ability to bequeath the property to loved ones.
Section title: Sectional title living provides a balanced combination of communal living, security, and private space, though it does still carry the responsibility of maintaining and managing your unit. A key disadvantage is the relatively high levies and the potential for body corporate politics. Some complexes allow pets, so it is crucial to research this aspect before purchasing a sectional title property to ensure it aligns with your needs.
Life rights scheme: One of the primary advantages of life rights schemes is the absence of maintenance responsibilities for the unit, allowing for a more carefree living experience. Other benefits include on-site nursing, frail care facilities, entertainment, lower levies, prepared meals, and high levels of security. However, it is essential to note that life rights agreements vary, so understanding the terms—particularly the developer’s policy on repurchasing your unit upon death—is crucial before committing to such a living arrangement.
Have a wonderful day.
Sue
