Approach retirement villages with caution (part 1)
Retirement villages come in various shapes and forms with varying costs, depending on ownership structure, location and services offered.
By Wouter Fourie (CFP®)
Wouter Fourie is the CEO of Ascor® Independent Wealth Management. He is past winner of the FPI Financial Planner of the Year competition and the co-author of The Ultimate Guide to Retirement in South Africa and, Secure your retirement.
In recent years retirement homes have been revamped into a growth industry where retirement villages and estates are advertised as investment opportunities with promises of quality of life, top-of-the-range healthcare, and good returns on investments.
Although these claims of a happy ending could ring true, one should approach them with caution as they come in various shapes and forms with varying costs, depending on ownership structure, location and services offered.
A general rule is to consider a retirement village that offers a full range of amenities, including healthcare and frail-care facilities. Since retirement villages are a form of communal living, they must adhere to the Housing Development Schemes for Retired Persons Act (HDSRPA) with the Older Persons Act also providing the elderly with protection against exploitation.
This law created the Community Schemes Ombud Service, which has a threefold purpose namely to provide a dispute-resolution mechanism, promote good governance of community schemes and the monitoring of that governance, as well as to provide education, information, documentation, and services in order to raise awareness of people who have rights and obligations in community schemes.
It is essential to know and understand the various ownership structures and rights and responsibilities of these schemes, as they vary greatly and can still provide obstacles that can trip the unwary. Therefore, the HDSRPA is aimed at protecting people who buy into retirement property developments, which includes certain protections offered by the Act.
Developers, for instance, are prohibited from using your money to develop a retirement complex. Should you put a deposit down for a unit in a retirement village, it must remain in a trust with a lawyer or estate agent until you take the transfer of the property into your own name. Remember to insist that your money is held in an interest-bearing account with all the interest accruing to you. In cases where you pay the developer directly, insist that the developer must provide you with a bank guarantee that they will repay your money if the scheme runs into financial difficulties.
Another protection offered is that a developer cannot receive any money from you unless an architect or quantity surveyor has issued a certificate verifying that the complex has been built according to approved building plans and that an attorney has issued a certificate stating that the title deed has been endorsed.
Remember to get the details about the ownership of the property and whether there is a mortgage bond on the property. Ask for the details of the facilities that will be provided and on which date they will become available. Promises are sometimes made to ensure the sale, but unfortunately, they are never kept, so it could affect your investment and the value of the property.
You should be privy to information like an estimate of all expenditure for the administration and management of development, as well as all its services and facilities that the developer will provide for three years after you become entitled to your stake in the development. Details of who is responsible for what costs, with a guarantee that you will not be held liable for any costs more than your levy, must be included.
Regarding your levy, you should be provided with levy details for two years after you become entitled to your stake in the development, with details on how the levy is calculated and what services are included.
Developers of retirement housing schemes must, in most cases, hand over the management of the scheme to a body corporate or management association, elected by the owners of the unit. The main exceptions are life rights schemes, particularly those sponsored by non-profit welfare organisations.
A word of warning though. The act can be (and is) sidestepped, mainly by selling units under so-called hybrid schemes, such as selling security villages under the Sectional Titles Act. It is your responsibility to do the proper research and gather the facts to enable you to make a final, informed decision. Remember, the Act is there to protect you. If in doubt, before signing any agreement or deed of sale, have a lawyer or accountant check all the details, it will be worth the cost.
This article is based on a section in the best-selling book “The Ultimate Guide to retirement in South Africa” by Wouter Fourie and Bruce Cameron. Please visit the website www.retirementplanning.co.za for more information on this book and the other top-seller book “Secure your Retirement”.
This article first appeared on moneyweb.co.za at https://www.moneyweb.co.za/financial-advisor-views/approach-retirement-villages-with-caution-part-1/
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