Weighing up your retirement options

When the time comes to sell your family home and move to a retirement village, your most likely choice is to be between a sectional title development and a life rights complex. 

And there are quite a number of factors you will need to consider in making the decision.

A life rights purchase is usually cheaper than a sectional title unit which is a big benefit. This is because you're not actually purchasing real estate and there are also no transfer duties, VAT or property registration costs to pay. What you are buying is the right to live in a certain unit in the complex for the rest of your life or, if you are married, until both of you have passed away. 

In most instances, you will also be buying access to on-site healthcare and related services at an affordable, predictable cost, which is very important to consider as your healthcare needs are likely to increase faster than your income as you age.

Under life rights, the development company is usually still involved in the management of the cottages or apartments in the complex and any other facilities such as a community centre or frail-care unit, because it is the actual owner of the property. This can also be beneficial as the developer has a vested interest in maintaining the village and adding to the facilities offered.  

In most instances, the developer will also establish a "stabilisation fund" at the outset to help keep monthly levies down and enable buyers on fixed incomes to budget with certainty.

However, life rights does have some drawbacks, one of which is that it is not possible to obtain a home loan to make a life rights purchase, because there is no underlying security for such loans. 

In addition, you cannot bequeath the unit you live in to your heirs. When you die, the right to live in it will be sold again by the development company, and your heirs will most likely only be paid out a percentage of your initial investment as an "inheritance", with the balance going into the stabilisation fund.

On the other hand, when you buy a unit in a sectional title development, you become the owner of that unit and an "undivided share" in the common property of the retirement village, which is an asset that you can freely resell or leave to your heirs.

Along with the other owners, you become a member of the body corporate responsible for managing and running the complex and, if you do that well, you or your heirs will also get the full benefit of any appreciation in the value of the property.

The disadvantage of this type of purchase is that many of the facilities that add value to a retirement village such as a clubhouse, recreation centre, dining hall, assisted living facilities or a frail-care unit are very expensive to build and run, and that those who buy  into sectional title developments could end up without access to such facilities because they and their fellow members of the body corporate cannot afford to provide or manage them.

This might mean having to sell up and move again at an advanced age if you become chronically ill or frail.