Otherwise known as baby boomers, this population sector is the fastest-growing consumer group in the world and it’s expected that by 2050, their numbers will have increased by an additional billion, which means they will account for one in five of the population.
And not only are they dominant in numbers, but armed with an increasingly higher collective spending power and a growing share of overall income as many have continued to work, they are also becoming key influencers for many industries.
Challenges
Sadly, many South Africans are ill-prepared for retirement and, with inflation steadily eroding their nest eggs, it’s becoming more and more difficult to save money for our golden years.
But even those who have managed to keep their finances in order are now faced with numerous challenges, including a dearth of affordable and suitable accommodation and having to grappling with the fine print of various ownership models to ensure they choose one that best suits their financial needs and goals.
Until not very long ago, a more stable economy meant that retirees could rely on their savings and they also had only one option: the traditional old age home concept which operated on a room and board basis for those no longer able to care for themselves.
Contemporary retirement
These days, the retirement sector is very different and accommodation options are a far cry from what they used to be, with most offering an array of facilities in addition to a roof over the head and three square meals a day.
There is a growing preference amongst retirees for continuing living independently in their own homes rather than alternatives such as assisted living communities, an emergent trend which is known as aging in place.
Therefore, today’s active retirees expect not only top-class medical facilities but also lifestyle amenities and, instead of single rooms, they are wanting self-contained, low maintenance units that afford them more independence and freedom.
And, with more and more empty nesters who are downscaling preferring not to have to move too many times in the coming years, many lifestyle retirement villages now accept residents from the age of 55, with developments also offering frail care options for when required as well as upmarket urban apartments for downsizing.
Supply and demand
The retirement sector of the market was overlooked and undeveloped for many years so, despite an uptick in development in recent years, there is a shortage of retirement property with developers struggling to keep up with demand.
And, with 8,1% (4.6 million) of South Africa’s population being 60 years of age or older, following the global trend, this is expected to rise exponentially, especially as the baby boomer generation are remaining healthy and staying active, thus living longer.
The main challenge developers face is acquiring the large tracts of land required for such developments at a reasonable price to ensure the units won’t be priced above the general housing market in the area.
Ownership model options
Along with different accommodation options available from which to choose, perhaps one of the most important decisions that retirees now also have to make is the type of ownership they prefer as these vary greatly and can have far-reaching consequences, both in the short and long-term.
The four main options are: share block, freehold, sectional title and life rights, the fastest growing scheme in the retirement sector and, as most retirees will have to support themselves for an unknown period with only their accumulated capital, this decision can seriously impact their quality of life.
1. Freehold: investors own their homes outright and can sell again as and when they like.
2. Sectional title developments: Investors also own their homes although they are usually required to cede a percentage of their profit to the development if or when they decide to sell. It’s therefore advisable to have an accountant check the financials and the annual report for things like the level of unrecovered debt, whether any loans have been taken out and the level of reserves.
3. Share block: Investors don’t own the property, but instead become a shareholder in a company that owns or has a registered long lease over a property. Through a use agreement, the company gives you the right to live in part of the property. You can bequeath or sell your shareholding, but there may be stipulations in the agreement as to who can occupy the property or buy your interest.
4. Life rights scheme: Essentially it affords the retired individual the right to occupy a unit in a complex for the remainder of their life while ownership of the property is retained by the development. This 'right' is paid for with a capital investment and, upon relocation or death the unit is ceded back to the development, usually for the initial invested price, and this payment becomes part of the deceased estate.
Retirees who have less capital to invest will benefit from the lower initial cost investment of the life rights scheme as they get a lot more house for their money than any other form of purchase and will then have more left over on which to live.
When the time comes to make decisions about retirement property, it is essential to do one’s homework. Investors should always compare a number of developments in their preferred area, looking at their facilities and their costs and levies.
It’s a good idea to request and read all the relevant information you can find about each place, ask questions, talk to residents and staff and always check the developer’s track record and reputation.
And, most importantly, make sure that you clearly understand the financial implications of the various ownership schemes. Do your sums and work out what you need financially and lifestyle-wise in the years to come before making a decision.
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