Retirement villages are a popular choice and there has been a dramatic growth in these complexes all over the country. They can be a haven after retirement but be sure to consider all the options. Initial costs, levies and facilities vary considerably. The most important criteria when selecting a village are your financial
situation, your state of health and the lifestyle with which you and your spouse will feel comfortable.
Retirement homes are not the confine of doddering oldies. If you are between 50 and 60 years old, active and healthy, there could be villages which suit you. Besides sporting facilities such as pools and tennis courts, many are close to, and provide membership of, golf and bowling clubs. Some also have double garages and space for caravans and a boat.It is important to bear in mind that if you are able to settle into a village early on, you will probably save a second move, which would naturally be more onerous and expensive in your later years. However, do ensure that the retirement village you select has the facilities you require in ten years time.
It is possible to sell the family home and move to a townhouse or to smaller house but if your health suddenly fails, you may be forced to make an immediate move, without the correct planning and consultation, into the nearest old age home.
The retirement village concept in South Africa has experienced growing pains and some developers have gone bankrupt. Legislation has improved and The Housing Development Schemes of Retired Persons Act, which was approved by Parliament in 1988, prohibits developers from using buyers' money to develop a retirement complex.
It is essential that before you make any decisions or sign any documentation, you consult with a lawyer - the costs will be well worth it.
Of the crucial factors to be considered before investing in retirement schemes, the most important, and generally the least understood, is the capital and financial structure of the village.
CAPITAL AND FINANCIAL STRUCTURE
There are basically five different types of capital structures on which retirement villages are based. These are full ownership or complete title; part ownership or sectional title; share ownership or share block schemes; life right and lease schemes, in which you have no ownership.
These capital structures can be financed by a developer in various ways. In most cases, it is done by obtaining a bond from a financial institution which is taken out on behalf of a separate company established for this purpose.
A retirement scheme involves several participants: the developer, the manager or administrators of the scheme and you, the buyer. If you obtain a loan from a bank to buy into the scheme, the bank will also be a party to the transaction. The key to financial security is ownership, which can be divided into full ownership, sectional title and shareblock schemes:
Full ownership
This is the simplest capital structure. As the sole owner, you hold the title deeds and the property is registered in your name. You enjoy protection under property laws and the Bill of Rights, which states that nobody except the state, and then only under exceptional circumstances, can remove you from your property.
Buying into a scheme which gives you full ownership or individual title, allows you to finance your house or apartment by raising a bond with a financial institution, without losing any rights.
As the owner, you will be fully responsible for maintaining the property and you will be personally responsible for the services, rates and taxes associated with that property.
Full ownership is regarded as the safest form of ownership, although the cost of facilities such as security, recreation and upkeep are relatively high. It is the preferred route for those who can afford it.
Sectional Title
This type of ownership offers almost the same financial security as full ownership, but resources and responsibilities are pooled, making the burden of upkeep and the provision of facilities that much lighter.
The capital outlay is as high as it is with full ownership, but maintenance is usually less because communal property reduces the area which needs to be maintained.
Flexibility is limited and joint decision-making is required.
For financial and physical security, this is the preferred, although not the cheapest route.
Share block schemes
Share block schemes have come under a great deal of criticism. The reason for this is that the schemes are usually much larger, more complex and present a greater risk and exposure than normal sectional title schemes.
However, their size and the resulting economies of scale generally result in more facilities at a lower cost a unit.
In a share block scheme, you buy a block of shares in an operating company and not the property itself. You are granted the right to use the property within the rules of the company.
These shares are usually transferable so you can sell them again. The rules may prevent you from selling to younger people, thereby limiting the value of your investment.
The investment itself may seem and can be good value, because you could pay less than it would have cost you to buy the property outright.
Loans and bonds may be tied to the property, and therefore with your shares you buy assets as well as liabilities in the company.
With this capital structure, you could find yourself out on the street if the underlying company goes bankrupt.
Life right
Life rights were first set up in the 1970s by welfare groups and this is the most complex capital structure.
Initial scares involving life rights have now been adequately addressed.
It is still a viable form of retirement development, but you should be aware of potential problem areas.
Life right is exactly what it says. It means that you have a right to occupy the property for the rest of your life. You do not actually have to buy any property or shares, so nothing in the village belongs to you.
You therefore cannot sell the right, except back to the company that runs the village under specific conditions.
The village can sell the right over and over again and can theoretically provide the use of the complex at a fraction of the price of it.
This can be helpful for people who do not have the capital to buy into a property, or for those who need their capital to provide them with income for living expenses.
The same risks attached to share block schemes apply to life right developments.
The amount invested is usually substantially less than other schemes that provide the same facilities.
It is not an investment that will bring any financial return, but it can be an excellent alternative if you do not need the investment to return to your estate - for example, if you have no heirs.
Investment risk
Participation in a retirement village can vary from ownership to being a boarder and it is important that you understand your commitments and the costs involved. And make use of a lawyer before signing any documentation.
LIVING IN A RETIREMENT VILLAGE
Every village is different and it is essential after you have selected the area in which you want to settle that you visit, inspect and talk to as many residents as possible. Unless you are very comfortable financially and elect to stay where you are or move into a granny flat with your family, the present trend is a move to a retirement village.
There are obvious emotional changes to contend with and you will be better suited to village life if you enjoy mixing with people. It is therefore important that those who are more conservative endeavour to continue their existing lifestyle. The layout of the village and the space between the units will affect your privacy.
Levies
Besides the capital entry costs to the retirement village, a monthly levy is payable which can vary considerably but largely depends on the additional facilities offered. Unlike the bad old days, levies are now more transparent and detailed breakdowns are available. Check on the escalation of the levy over the past few years. Village managements are also only too aware of the wrath of residents when excessive increases are announced. It is pleasing to note that the current trend is towards fixed levies through the establishment of a stabilisation fund. The stabilisation fund is funded by a percentage of the profits on the resale of the units.
Accommodation
The layout of individual units has improved over the years and now units generally have an open-plan design with either one or two bedrooms and bathrooms. Once again it is in your interests to spend time comparing units. Inspect not only the one which is available but others in the village and other villages in the area in which you have decided to settle.
Healthcare facilities
Frail- and semi-frail-care facilities, or health-care annexes as they are now called, are naturally a critical aspect of a retirement village. Irrespective of your age, it is important that you ensure that they meet your requirements. You should also ensure that there is a medical centre and a hospital nearby.
Healthcare centres are expensive to maintain and can cost R250 a day. Be sure that you get details of your potential costs before entering the village. Some complexes offer a number of free days each year. Bear in mind the costs should your spouse need to live in the healthcare centre on a permanent basis and you remain in your cottage. It would be sound thinking to consider some kind of health insurance to cover this eventuality.
Where and when to enter a retirement village is no easy decision and should not be taken lightly. Remember the old saying: People don't plan to fail they just fail to plan. If you decide to enter a village between 50 and 65, between 65 and 75 or later, you must decide on your needs at the time of entering the retirement village but bear in mind that these needs may change in your later years.
For advice you can contact the South African Council for the Aged at PO Box 2335, Cape Town, 8000. The council's telephone number is (021) 418 2145, the fax number is (021) 419 5831 and the email address is [email protected]. Bruce Cameron and Magnus Heystek's recent book Retirement - the Amazing and Scary Truth contains a number of chapters on this subject. It includes a useful check list of 138 items you should consider before you make your final choice.
Successful planning
An example of successful planning is Mr and Mrs Dyke who moved into Port Elizabeth's Annesley Gardens in 1989. Although from Cape Town they found the villages they liked there, too expensive. They felt they would be paying for amenities they would not use. They did, however, have family in the Eastern Cape. They recently moved to a comfortable apartment at Cassio Park where they get all the attention they now need. A three-course lunch is provided daily and medical assistance is available on a 24-hour basis.