When you started the process of lifting yourself above the “Granny Flat & Old Age Home” type of retirement, there were very few alternatives, if any. There were possibly no Frail Care Centres, just Hospitals, no Assisted Living Schemes, just family members, and in fact people’s life expectancy was not as high as it is now thanks to improved medical research, better care and specialised medicine.

Even legislation was inadequate and seniors within the community (especially the white community) were not treated with the respect and dignity that is your right in terms of our current constitution. Property development was not as specialised, and the concepts of “Retirement Village, Sectional title, Share-block and Life-right” were unfamiliar terms in South Africa.

The changes that have taken place in order to address these and other issues have placed a new menu of alternatives on the table for everyone reaching retirement age, but the major initial hurdle has now become the process of analysing which choices offer the best long term alternatives for you & your partner.

The necessity of research prior to commitment

There have been so many retirees who have spent their working lives looking forward to retirement, only to find that they have fallen victims to the “trap” of not doing enough homework prior to finally purchasing a retirement home.

Due to the nature of the real estate market the “caveat emptor” part of the deal (Let the buyer beware) has produced a situation that can only be described as a nightmare for these unlucky people. Because a property transaction is one of the transactions that must be in writing to be legally binding on all parties, one tends to ignore the fact that a written contract regulates an agreement between two parties – yourself and the seller.

The aim of this leaflet is to try to provide general guidelines that will help you to at least to prepare a list of questions which may serve as an initial screen making it easier to separate the “possibilities” from the “unwise” categories of property purchases for retirement.

You should always try to consult with family, friends, legal resources and financial advisors prior to making a commitment to ensure that you don’t make what could prove to be a costly error. I am certain we are all acknowledge that we might learn something new which is preferable to making a serious financial mistake.

How does one define a Retirement village?

In Australia for example, retirement villages are defined as complexes of residential units or a number of separate complexes of residential units on common land. There are however special sets of legislation that govern these complexes. Most developments fall into what we would call a “life right” scheme. They also have totally different regulations which apply.

In South Africa, we have different legislation, different legal rights and different forms of ownership. A common South African generic definition would be that it is an area of residence or a complex reserved for people who have reached a certain age and who want to live their lives in a semi-sheltered environment with like-minded people. This is fine initially. If this were to be the only “definition” of what defines a retirement village, then what is there to stop re-sales or rentals of units to young family people who live in a different way?

Often you may assume those special facilities like health-care, frail care, qualified medical assistance, assisted lifestyle or other forms of geriatric support form part of the package. Although you may not require any of these facilities currently, no-one is getting any younger and there is a possibility that you may need them in the future. Are such facilities available?

Possibly an issue which is less often considered is whether the facility can cater for your partner if he / she is the first one who is confronted with difficulties requiring special attention or support. Can the village you are considering cater for this possibility on an achievable financial level? If it has facilities in co-operation with, for instance, a hospital, how far is the hospital removed geographically?

Does the village have facilities which enable you to procure meals without having to cook for yourself?

Does it have a social structure in the form of a social club, recreational facilities and the like? Is there a residents’ committee which provides the possibility of interaction and communication with management?

Is overall security within the village / development of an adequate standard, and are such services included in the levy? Is the levy fixed for life or does it rise annually? If annually reviewable – what does the history tell you?

Ownership / or occupational types

1. Ownership 

   1. Full Individual Title: This is normally available when the sites / plots /erven are situated within a common property area which is managed by trustees and a levy is charged to offset service costs within the common area. With this type of ownership you could for instance, register a Reverse Mortgage if required in order to maintain your lifestyle.

2. Sectional title: This is another type of ownership which places the rights of ownership squarely in the hands of the owner. Registering a Reverse Mortgage is also possible, and a levy is charged in order to finance the services provided.

3. Share-block: This type of ownership means that one has a right of occupation to a specific unit tied to the block of shares you own. Currently there is no finance house willing to grant a Reverse Mortgage bond on this type of ownership. Levies are payable to cover the expenditure as sanctioned by the board of directors.

4. Life-right Ownership: This type of ownership confers the right of tenancy to a person / persons for their lifetime. The ownership is retained by the administering authority and is resold after the demise of the last dying. Often this type of ownership has a clause which ensures that the estate ultimately benefits by:

   1. The whole purchase price plus a portion the of capital growth

   2. The whole purchase price without capital growth

   3. Only a portion of the original purchase price

   4. No part of the purchase price.

   5. A combination of the above.

Normally the purchase price is adjusted accordingly.

As one merely has a guaranteed right of occupation for the duration of your life expectancy, there is no possibility of registering a Reverse mortgage.

2. Rental / Lease Occupancy:

This type of occupancy is akin to any normal rental agreement and no rights of ownership for the tenant at all.

Some of the main legislation that is applicable to the development and sale of retirement villages / units

1. The Older Persons Act - Act 13 of 2006 (And the regulations not yet enacted)

2. The Act on Share Holdings - Act 59 of 1980

3. The Sectional Title Act - Act 95 of 1986

4. Development of Housing Schemes for Retired Persons - Act 65 of 1988

5. Arbitration Act - Act 42 of 1965

  What other factors or circumstances should I bear in mind?

1. The first factor of which cognisance should be taken is the very fact that you are researching Retirement complexes. This means your circumstances are changing, and the maintenance of dignity in your life is dependant on accepting changes that are natural, inevitable and unavoidable but can be planned for.

2. One should remember that the possibility exists that circumstances may well require that this “final purchase” may have to be sold some time in the future and that contracts that are totally irreversible may not be wise. Examples could be:

   • The failing health of either yourself or your partner could force one of the two, or even both of you to move into a more medically friendly environment. Normally a Retirement village will have some type of frail care facility, but one should do homework on the cost.

   • If one of you two should either pass on, or be a victim of failing health, financial dictates may require that you sell your unit. The reason could also be that your unit could be too large for one person & you may require a smaller unit.

3. Ageing brings changes physically and mentally, and it is possible that you and your partner may no longer want to live in total independence, but would prefer to start living in a “smaller” community with social activities organised for and around people who are becoming less and less mobile. (How many people in their late eighties would want to play golf every second day,? whereas bridge clubs, bingo, organised tours etc. could be just up your street)

4. With due respect to your right to independence of lifestyle and the right to decide all matters for yourself, you should take note of the fact that:

   • Your decision regarding where you will stay or what you will do also affects your children who are concerned about your wellbeing. Should they believe that you should make a change in your own interest, and you stubbornly ignore their input, your decision has an effect on two parties – yourself and also on your children. You should then be prepared to accept that their input is a valid and legitimate one. Your family should be allowed to provide their input for your due consideration.

5. Maintenance of dignity in life usually goes hand in hand with financial management. This may mean your family should consider that enabling you to maintain your dignity will ultimately mean a smaller inheritance will be passed on. The reverse situation is only unpalatable for you – not them.

6. Possibly a Reverse Mortgage should be a feature of your plan when you assess the financial instruments and implications of enhanced care necessities for you & your partner if required later in life.

Summary of the main points for consideration

1. Do you wish to buy Sectional Title or just Occupational Rights or do you wish to rent?

2. In which area do you wish to live?

3. What price class can you afford?

4. What are the conditions of payment? (possibly subject to the sale of a property)

5. Which do you prefer: separate units, duplexes or a tower block?

6. Do you prefer a unit with one, two or three bedrooms?

7. Is there as sick bay or a full-time frail care unit?

8. Are meals, of which one is compulsory, served daily?

9. What does the levy amount to and what is included?

10. Obtain a copy of the latest balance sheet and other relevant financial statements.

11. Is there a reliable electronically controlled security system?

12. Which body controls the administration and what is the nature thereof?

13. To what extent do residents have a say in resolutions taken?

14. Is there a shopping centre close by?

15. Have any bonds been registered against the village?

16. Is the developer/controlling body financially strong and healthy?

Consideration of the answers to these points in detail.

1.1 Obtaining a title deed in order to register the unit in you name is preferable, whereas having it done by the governing body causes many problems.

1.2 Transfer duties are payable when buying or selling immovable property.

1.3 Only occupational right which has been properly set out in a contract and which grants the right to use what is above floor level may be used during the lifetime of you and your spouse. This clause used to have shortcomings in connection with preferential rights, but has been adequately covered under Clause 4B of Act 65/1988.

1.4 Transfer duties are not payable on Occupational Rights.

1.5 Rent is not recommended as it can be cancelled at any time and costs too much in the long run.

2. Naturally there are a variety of options, but remember that in the better areas the selling price is always higher. Retirement Villages should, however, be situated close to a business centre.

3. As the condition of sale normally requires payment in cash, the buyer should make sure that he can afford to pay the required price, however, the buyer should keep in mind not to invest all his money in the deal. He should remember that levies still have to be paid and some amount must be kept in reserve for emergencies, e.g. hospital fees.

4. There may be exceptions, but normally the deal requires payment in cash when occupation is taken. If you have to pay installments on a bond as well as the monthly levies, you may experience sleepless nights. Both schemes have advantages and disadvantages.

5.1 Separate units provide the feeling of a home, but people do not mix regularly and thus become very lonely. There may be a small garden but it requires maintenance and could become a burden.

5.2 The steps of a duplex may soon become an impediment in the case of elderly people.

5.3 Tower blocks have advantages - people soon learn to live like a family and security can be better maintained. The maintenance costs are lower, but the rooms are generally smaller and the lifts may be a problem for some.

6.1 When people move out of their homes into flats, they often wish that they have more rooms. The question arises whether it is really necessary. Do husband and wife really need more than two rooms and a bathroom and does a single person require more than one room and a bathroorn? Bear in mind that the bigger the area the more capital is required and the higher the levy.

7.1 Consider this item very carefully: a sick bay offers temporary aid to an indisposed person.

7.2 Frail care: this comprises continuous care of an elderly frail person. Is this not the motivation to buy a unit in a Retirement Village so you can be sure of accommodation in a frail-care unit when needed? This must be a very important consideration when buying.

7.3 Frail care is divided in two categories:

- A Retirement Village has the facilities for frail-care, but is not registered; - Other Villages have the facilities and are registered with the relevant instances, e.g. the BHF (Board of Healthcare Funders). The difference between these two classes is: if a medical practitioner prescribes a particular treatment for a patient, all or a part of the costs are paid by the medical scheme, whereas this is not the case in the other class. This should be a very important consideration when buying.

7.4 The prospective buyer may argue that he is still well and healthy. (Friend, this could change in a wink!)

8. You may argue that you will be able to cater for yourself. This may be so, but for how long - especially if you are alone. You may be sure that if meals are supplied, you will enjoy a good meal every day.

9. This is very important. Do not hesitate to ask questions such as:

- The tariff list for the preceding as well as the current year.

- Has a tariff policy been laid down?

- What is included in the levy: Meals, water, sanitation,

electricity, cleaning services & maintenance.

- Just the outside or both inside and outside, other taxes, insurance, etc.

10. Ask for a certified balance sheet, showing the accumulated profit or loss, other liabilities as well as investments clearly set out.

11. It is very important to examine the security system carefully, e.g. is the whole area properly fenced in with security wire or electrified? Are the gates electronically operated? Is there 24- hour intercommunication between units and the main security control? Is security enforced on a 24-hour basis? Is sufficient parking space available inside the area?

12. The governing body or board of trustees performs a very important function. Convince yourself that it is a reliable organization. Is it a developer, or closed corporation, a Section 21 company, a welfare organization or a church denomination? Each of these has advantages and disadvantages, but some of them enjoy the advantage of certain privileges which make a difference to the running costs of the scheme.

13. Examine the structure of the governing body. Do residents have a at least a 50% representation on the committees with decision-making power, or can it only make recommendations? In the case of latter it means that somebody else will take decisions for you.

14. In regard to banks, post-offices, etc. experience has proved that in the case of the elderly it is important that they should be within easy reach. It is generally accepted that transport is available, but it may be only once or twice a week. Bear in mind that in the near future you may become dependent on a medical practitioner.

15. The starting point should be that no bonds whatsoever may be registered against units, but sometimes there may be bonds on sectional titles. If bonds may be registered against occupational rights - stay clear.

16. Ask for a copy of the contract that you will have to enter into as well as the domestic and other rules and study them carefully.

The preliminary homework has now been done. It is trusted that you made careful notes of all the answers supplied to the different questions. Your real homework starts now. It is suggested that from all the information gathered you eliminate the units that do suit your requirements to about three or four and from these you will make the final choice.

You can be sure that if these questions and comments are carefully studied without any bias, you should be able to make the most advantageous decision.

17. The next important step is to study the contract very carefully to make sure that you know exactly what it contains - e.g. that when the surviving spouse dies the unit has to be sold.

1. In certain cases one's estate can share in the appreciation, i.e. the profit between 5% to 50%, but in some cases there is a depreciation and one's capital shrinks to zero. Be very careful before you sign any document - study it carefully.

2. Never sign any document unless you have consulted an attorney, an auditor or an authority on the subject. Take all your notes and the documentation along with you. Put all your cards relating to your finances on the table - it may cost you a few rand but it is certainly an excellent investment because there are many aspects in such a contract to which attention will be drawn. Listen attentively to the advice given before making a final decision.

18. Please take note that this document is merely a guideline to help orientate you and serve as a base from which you can build a sensible profile of important matters to check up on when you decide the time is ripe to look at your final investment in a home.

NB This document also carries the approval of The Interest Group for Retirement Villages, Private Bag X991666, Garsfontein. 0060

For more information please contact:

SAARP

Tel. 021-5921279

Fax 021-5921284

E-mail saarp@iafrica.com or info@saarp.co.za

Web: www.saarp.co.za