Title Ownership and Life Right Schemes

IThere are two traditional ways of buying into a lifestyle or retirement development. The first is by acquiring Sectional Title ownership in an estate or village and the other is by buying a Life Right in a development.

There are pros and cons for both buying options. The purpose of this article is not to promote one or the other. It is mainly to help the prospective buyer to make an informed decision and to know what they can expect now and in future.

To understand both options are important to avoid future unhappiness.

Sectional Title Ownership

Sectional Title ownership is where a number of homes are situated on a defined parcel of land,  and is currently one of South Africa’s favourite ways to own property.  Sectional title developments allow that homes can be sold to a willing buyer at any time in the future at market related prices.

Sometimes, owners or investors of any age, can purchase and rent their investments out to suitable tenants (0ver 50s’) at market related rental.  The property can also be bonded to a bank or financial institution. Registration of the units goes through the deeds office and hence transfer duties and conveyancing costs must be paid.  Life Rights properties may not be bonded nor sold as part of an Estate.
The developer of the any Sectional Title Estate will have no responsibility for any maintenance or running costs of the Estate once he has transferred all the units and passes the responsibility of the Estate on to the owners.  The units in an estate, as a sectional title development, are then subject to levies and special levies for the maintenance and upkeep of the exterior of the units and all common areas of the property – land, gardens, lifts, roads, foyers etc

The Estate is managed by the Home Owners Association and Body Corporate on transfer.  Levies are administered by representative trustees, appointed by a Body Corporate made up of Home Owners, and the managing agent. The levies ensure the long term sustainability and value of sectional title investments. It is cost effective in that all stakeholders share in the constant upkeep of the Estate.
Some estates also has the added advantage of being an assisted living estate for those residents requiring medical assistance in their day to day activities. 

The Sectional Titles Act ensure that all responsible parties are accountable for their actions and are obliged, at all times, to operate in the best interests of the development.  Developments for retirees will thus fall under the Sectional Titles Act as well as the HDSRPA (Housing Development Schemes for Retired Persons Act 65 of 1988), and are governed by the Sectional Titles Act and the Prescribed Management Rules.

 

Such estates are full sectional title estates and the homes can be bought as investments for the future and can either earn rental income, be sold or be bequeathed. It is an ideal long term investment opportunity that will at the very least keep pace with inflation and allow for capital growth.

Life Rights Option

IThe Life Rights scheme concept was first launched in SA in the 70’s and is aimed at those that have less capital to invest.  It allows a purchaser, the “legal right” to enjoy and occupy a unit, along with the facilities offered, for the duration of their (and their spouse/partners’) natural life.  A life right does not buy a unit but secures the right to occupy. The Estate and all its facilities and amenities remains the asset and responsibility of the developer.

A life right option should never be regarded as a property investment as there is no asset that grows in value – which means neither the buyer nor his/her estate stand to benefit financially from the transaction. Buying a life right is completely different to buying sectional title and a concept that many South Africans don’t fully understand. On signing an agreement, a buyer commits to paying a contribution (in other words the purchase price) and has the right to live in the unit for the rest of his lifetime or until he leaves the village.

Many Life Right schemes do not offer long term investment value to the purchaser, some however provide for a profit share option. This depends solely on the development’s rules and offerings.  Should the life right terminate through death or other circumstances – being forced to move etc, it is sold at a nominal value back to the developer, who resells the unit on to a new “Life Right” owner, at market related pricing with the same terms and conditions. The selling back price varies from development to development and the “buyer” must make sure they understand that from the outset.

There is inevitably a material loss of value in the investment, as the estate may only receive the original purchase price minus the costs of selling and refurbishment of the unit – thus no capital growth.  There are no transfer duties, Vat nor registration fees payable and as the property is not owned at any point in time.

Life Rights does however suit people in that it guarantees a safe place to live until the end of their days.  These villages also cater specifically to the needs of the elderly people and ensure that the best medical care is easily available.  Life rights can be cheaper than sectional title or share block schemes. Selling the life right or getting out is not so easy.  This would impact the winding up of an estate or attempt to move. The life rights contract could require that the seller wait until the life right is on-sold before he gets paid out and this could take a period of time.

The developer can never dismantle the life right unless 75% of the right holders agree to it (HDSRPA- the Housing Development Schemes for Retired Persons Act 65 of 1988).  The developer remains the sole owner of the units and is responsible for all maintenance and upkeep of the Estate including the frail care and all facilities. This can be to the advantage of the life right owners because it is in the interest of the developer to ensure facilities and services are always kept to a high standard for the future existence and marketability of the Life Right Retirement Village/Estate.

In Closing

We never know what the future holds, but just keep in mind. If you think you’ll want to sell your place in future, then Life Rights might not be a good option. If you do however want a place that you will live till the end of your days with care for you and your spouse, then Life Rights might be the right option.

There are many Title Ownership and Life Right places with various offerings.

You WILL find something that suits your needs and requirements.

No need to feel unhappy about the decision you take – but understand the consequences if you change your mind later..