One of the most popular investment options is to buy retirement properties for owner use or to rent out. However, buyers need to investigate the options available to them – ie: choosing between buying in a sectional title estate, governed by the Sectional Titles Act and strictly for the over 50’s as reflected in the Rules of the Estate – or buying a life right – which is not a property investment as there is no asset that grows in value and it does not fall under the Sectional Titles Act, but rather the Housing Developments Schemes for Retired Persons Act 65 of 1988. (https://heritage-estate.co.za/advantages-sectional-title-ownership-heritage-estate-life-rights/)
Property as an investment has many general benefits , but when it comes to retirement – the most important factor is its ability to generate capital growth or rental income that keeps pace with inflation.
Statistics reveal that the majority of South African investors who are in their golden years currently own some kind of property, and have sold a property to either downsize or move into a more secure environment that is close to amenities such as hospitals and frail-care facilities. A recent report from FNB’s Estate Agent Survey stated that the group of sellers selling “to downscale due to life-stage” was by far the largest single group of home sellers in the third quarter of 2017.
Investors can plan a long-term home or rental portfolio that will provide sufficient income or capital growth to support them at today’s rates and know that it will continue to support them in 10, 15 or 50 years’ time. The rental income should grow at roughly the same rate as inflation and there by allow the investor to support themselves in future years in the same lifestyle as they do today.
Property investments can be financed through a bond or paid cash. Using bank financing gives the investor the opportunity to use rental to pay back the bond – the property will then become an income producing asset with capital growth. Banks are generally reluctant to grant finance to investors who are 60 or older, which is why the majority of property purchases are cash buys, particularly those in retirement villages. It’s rather surprising that financial institutions are not looking at this mature market which is fast becoming a key driver of growth in the property sector.
Certain developments allow investors to buy a home under the prescribed retirement age, even though they set the age of the residents within the development at 50 years old and above. In some cases, investors will purchase a home within a retirement village and let it out until they reach the minimum age required to live there themselves. Apart from rental income, properties generally appreciate over time and this capital growth can create a very useful emergency nest-egg.
Most retirement annuities limit how much capital one can withdraw as cash on retirement, however properties can be sold at any time, though it may take a few months depending on the market conditions. It is however still easier than accessing capital tied up in a long-term investment.
The biggest benefit of a Retirement annuity is the tax, but property investments have tax benefits too. Interest payable on a mortgage is tax deductible and that amount can be quite significant early on. This benefit does decrease as the bonds gets paid off over the years, but ones’ tax bracket generally drops on retirement.
By living off the income generated by a property portfolio without selling the properties themselves, investors can also build a valuable legacy for their families and loved ones.
Property makes an excellent retirement investment. It’s never too late to start!