Sectional Title vs Life Rights - Which Offers Over 50s The Better Deal?
Post by: Eastlands Estate, 30 Jul 2019
If you’re a home buyer under the age of 50, you’ve probably never heard of life rights. This is because it’s only a purchase scheme that facilitates the “buying” of property in retirement villages and other over-50s estates. There is always a debate raging in the mature property industry as to which offers the better deal – life rights, or sectional title. Everyone has their own opinion, but if you’re currently looking for a property within a retirement community, it’s a good idea to know exactly what each scheme offers in terms of benefits and financial incentives.
What are Life Rights?
A life rights scheme isn’t actually a home purchase scheme at all, because particpants don’t buy their home, they merely buy the rights to live in it for the rest of their natural lives. The property developer retains full ownership of the property, so it’s essentially a lot like renting, except your payment is a usually in the form of one lump sum, or possibly a few individual payments, depending on the agreement you have with the developer.
The South African Association of Retired Persons (SAARB) defines life rights ownership as “as a guaranteed right of occupation of individuals for their lifetime, whereby ownership is retained by the administering authority, and is resold after the demise of the last dying person.”
Life rights agreements are covered by the Housing Development
Schemes for Retired Persons Act 65 of 1988, and the life right becomes an asset in your estate. However, exact details differ from development to development, so buyers are strongly advised – as you would be if purchasing a sectional title development – to consult with your attorney before signing on the dotted line. Your contract may, for example, state that your estate benefits from your life rights by either the entire purchase price plus a percentage of any capital growth, only a portion of the purchase price, or no part of the purchase price at all!
What are the Risks of Life Rights Schemes?
If you are interested in living in a brand-new development, and so are looking at buying either off plan, or in an estate where there is still extensive building work going on (including your home), be careful. If you buy off plan, or buy a unit still being built, and the developer becomes insolvent, you have little, if any, legal recourse. While your right to lifetime occupation is protected by law, this can only be enforced if there is actually a property for you to live in in the first place! The recovery of your lump sum payment into a scheme that goes bankrupt doesn’t enjoy any preferential status in the eyes of the law.
What is Sectional Title?
Sectional title properties are becoming ever more popular in South Africa owing largely to the rise in demand for housing within security and luxury lifestyle estates. In a sectional title development, you retain full ownership of your property once you’ve bought it. This means you are fully within your rights to sell your property to a willing buyer at any time at a market-related price. Because you own your property, you can either use it as an investment – renting it out until you’re ready to live in it yourself – sell it, or leave it to family in your will. This makes them perfect longer-term investments, as property usually grows at a rate that keeps pace with, or outstrips, inflation, allowing for capital growth.
What are the Risks of Sectional Title?
The main risk of a sectional title development is that you may outlive your pension and/or investments and savings. In this instance, even if your property is paid off, you may struggle to afford homeowners’ insurance, rates and levies. Your property would then need to be sold. But you would at least have the proceeds from that sale with which to buy another, smaller property.
So which is better – Sectional Title or Life Rights?
At Eastlands, we firmly believe the financial security offered by investing in a sectional title property makes this purchase scheme highly desirable. In your golden years, knowing that you own your own home, and have a valuable asset to leave to your family brings immense peace of mind.
It is true that life rights properties are usually less expensive than sectional title properties, but at the end of the day, you get a lot less for your money. You also never have the comfort of knowing your home is really yours, and you always run the risk of everything going wrong if the developer goes bankrupt. Which, in our volatile property market, is always a possibility!
Properties at Eastlands start at under R2m, so why not make an appointment to view today? Your luxury retirement is waiting for you!
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