Sectional title versus a life right retirement property

When it comes to the decision to retire there are nowadays a myriad of property options, from retirement villages that offer freehold houses or sectional title units to life rights facilities. Each property option comes with its own unique legalities.

This month, I thought I would highlight some of the important differences between sectional title and life rights property.

Sectional Title Property

If the retirement scheme offers the opportunity to purchase a sectional title unit in the scheme, then the retiree-purchaser will acquire ownership of the property. With that comes the advantage that the owner is by law granted a say in the management of the scheme.

There may also be transfer duty and transfer costs involved. An advantage is that the property will generally appreciate in value to the benefit of the property owner. While this type of retirement purchase can be more costly, it is an asset that can be utilised as you wish and sold at a profit.

Life Rights Property

The important aspect about buying a life right is that you invest in use and do not actually acquire ownership of the property. The investment is however in the form of a "loan amount" to be repaid on termination.

The type of scheme differs, but usually the purchaser enters into an agreement with the seller for the right to reside in the housing unit and make use of the communal facilities for the duration of his/her life. The purchase price is usually (not always) in the form of a rent-free loan.

For example, if the "purchase price" is R1 million, the purchaser pays this to the seller who can then apply it as he (the seller) thinks best, but with the proviso that the loan amount must be repaid (in full or part depending on the agreement) to the purchaser or to his/her deceased estate. It could be that only 80% or 90% of the original loan is to be repaid or that there will be a deduction (e.g. R1000) for each month that the purchaser occupies the unit.

Life rights are usually more cost effective and do not involve conveyancing costs and transfer duty. Where sectional title levies and rates increase annually, many life right schemes fix the increases so that you have better control of the costs. The downside is, however, that it is not an investment in fixed property and not an asset that will appreciate in value.

When looking into retirement estates it is best to consult with an attorney about which option best suit your lifestyle and retirement plans. Contact STBB on info@stbb.co.za or visit www.stbb.co.za.

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