Purchasers can be sole owners of a home in a retirement village under the Housing Schemes for Retired Persons Act of 1988. This type of development is the simplest capital structure for purchasers, and purchasers receive title deeds and have the property registered in their own name(s). Purchasers also benefit from protection under the property laws and the Bill of Rights, which states that nobody other than the state, and only under exceptional circumstances, can remove them from the property.
Purchasers can obtain a bond with a financial institution, while still retaining all rights to the property. Monthly fees for joint facilities or services should also be taken in to consideration, such as security, recreation and the upkeep of public areas; emergency healthcare or a frail care/ sick bay unit; and a Managing Agent as well as a formal governing body.
The problem foreseen by HERVASA with this type of scheme is that if individual title deed residents let their property deteriorate or not be adequately maintained, other residents in the village would have little recourse other than expensive legal action. This would mean a general devaluation in the properties within the development which would, of course, affect each individual owner as well as the village as a whole.
Retired Persons Share Block Village
Share block schemes have been subject to much criticism due to their greater risk. Unlike sectional title, nobody owns an identifiable unit. These schemes are usually found in the larger and more complex villages. Because of their size and economies of scale, they generally offer more facilities at a lower selling price and operating cost per unit, which is more attractive to the target market. The developer will sell the shares, but the owner never receives dividends on that share, they just have the right to utilise the property within the rules of the company.
If this were the choice of the developers, they would need to investigate the legal and financial implications with professionals who specialize in this field. Developers are also permitted to have mortgage bonds on such developments. However, due to these financial requirements, they have limited appeal.
The shares are transferable by re-selling and the developer would not benefit from these sales directly. As with most developments involving the retired person, it is usual to appoint a Managing Agent and have some form of medical facility available on site. With the initial purchase price being low, it would be unwise to set the levy for life or at a fixed escalation percentage.
Life Right Village
Life Right developments commenced in the 70s in South Africa and saw incredible growth during the mid 90s as a form of senior retirement accommodation security. These schemes are particularly attractive to people who are short on capital, as the cost to them is significantly lower than owning or having a share in a scheme.
Life Right is exactly what its name implies; a person buying into such a scheme has a legal right to occupy the premises for the duration of their life. The person does not buy the property or shares, therefore, nothing in the village belongs to them apart from their personal possessions. The village can sell the 'right' repeatedly when the resident leaves, having paid back any monies agreed to in the contract.
These developments are recognised as a form of ownership by the Housing Schemes for Retired Persons Act of 1988 and therefore give protection to the developer and seniors buying into them. Unlike Sectional Title developments, no transfer duty or VAT is payable on life right transactions. In all forms of ownership, the buyer has the protection of the Act but with life right the developer has greater flexibility and a more efficient cash flow during the development period. It is usual for the developer to offer in the contract some percentage of re-sale profit to go to the purchaser or their estate on re-sale. This percentage varies between 40% and 60% depending on the initial sales package.
The developer is required to appoint a Managing Agent for the day-to-day operations. The residents pay a levy for the operating costs, which is to be estimated for the first two years prior to selling and details need to be attached to the initial sales documentation.
The developer is prohibited by the Act to use monies paid as a deposit for the development of the village as these monies are to be held in trust until occupation or transfer has taken place.
Sectional Title Retirement Village
Sectional Title developments are usually the easiest to commence and financing is generally more available from financial institutions. It’s also the preferred choice of most South Africans as costs are less expensive due to the shared running costs of the communal property and relatively small exclusive use areas needing maintenance in comparison to full ownership. The development of a sectional title retirement village can however be quite onerous due to the legislative requirements. There is always the question of which takes precedence, the Sectional Title Act or the Housing Schemes for Retired Persons Act of 1988.
In recent years there has been a tendency to offer Sectional Title schemes with a fixed levy and the developer retaining a greater percentage of enhancement. The developer would not benefit under a normal sectional title scheme once the initial sale has been transferred, however, the selling price would be similar to a full ownership property.
It would be the responsibility of the developer to appoint a Managing Agent for the development, which will be automatically renewed annually, unless the developer or body corporate notifies the managing agent to the contrary. If a developer is to include a facility for debilitated persons, which is generally expected in a sectional title development specifically for the aged, then it is to comply with Section 1 of the Aged Persons Act of 1967 (Act no. 81 of 1967) and sections 3 and 4 of that Act.
When the first resident takes occupation, the Body Corporate must be formed and must then comply with the rules and regulations of the Sectional Title Act.
Assisted Living Village
Assisted Living Developments are intended for individuals who need some assistance but do not need nursing care on a daily basis. They usually offer help with bathing, dressing, meals and housekeeping. The amount of help provided depends on the individual’s needs.
The Assisted Living Facilities Association of America defines assisted living as “any group residential program that is not licensed as a nursing home and that provides personal care and support services to people who need help with daily living activities as a result of physical or cognitive disability”. Assisted Living Developments go by a variety of names: adult homes, personal care homes, sheltered housing and retirement villages and residences, sheltered housing. Local jurisdictions vary in their definitions and requirements.
Assisted Living Developments are often associated with the independent living communities or nursing care facilities, offering residents a range of care for challenging needs. Many assisted living facilities also have professional nurses and other health care professionals on staff or available on call should a resident require special care.
Assisted living developments are usually sold as Life Right under the Housing Schemes for Retired Persons Act of 1988.
Paying for Assisted Living
Most assisted living developments charge a monthly rent/ levy. In some cases, the fee covers only a few basic services, i.e. cleaning of suite, water rates and taxes, a midday meal, electricity and 24-hour nurse call. Other establishments consider an all-inclusive package covering a multitude of services; this, however, can become onerous and very expensive for the resident and the owner.
Some long-term care insurances and medical aids will cover assisted living developments. There are a number of assisted living communities that offer subsidies or are subsidised by the government. Applicants for subsidies are almost always placed on a waiting list.
Financing the development
A reputable person or company who specialises in the care of the elderly should first view a property or piece of land that is available for development, to assess its appropriateness for assisted living developments. The developer or owner would finance the initial land value by means of outright purchase or bond, the first being most favourable. The cottages or suites would then be sold on a ‘plot and plan’ basis, with a reasonable deposit required from the purchaser. Sufficient funds need to be available for marketing the development and other fees. Developers would benefit from the initial sale and continue to benefit from re-sales due to price infrastructure, by way of profit on enhancement.
There are few rental schemes for the elderly outside the major cities, due to the client base generally being within the low to middle income bracket. Many of the elderly would only consider this as an option if they had relatively small amounts of capital and felt that they would need this for healthcare at a later stage. The elderly tend to feel quite apprehensive in rental properties as they have little or no guarantee for their future accommodation needs.
From the developers point of view, the costs of building takes much longer to recover and there is no assurance of occupancy once the units are built. Developments of this nature usually involve charity organizations or are funded by overseas investors who usually prefer to offer funding for developments in the previously disadvantaged sector.
Sectional Title Village for Seniors (with a rental pool)
This type of village would be a new product on the market and would probably be more popular with overseas investors. Such investors would benefit from a capital growth on the investment while at the same time receive dividends from the rental of their unit. A development of this nature would be managed on a similar basis to the American Condo. It would therefore be necessary to develop a theme throughout the village, such as Cape Dutch Cottages. The cottages would need to be furnished and decorated in the chosen style and the cost would be covered in the purchase price. A monthly levy would be charged for the full maintenance of the development. For the owner’s piece of mind, the rental of units would be marketed to the retired sector of the tourism industry and not to families with children.
It could be possible to link with SAGA or similar organisations that do regular tours within South Africa in order to market this type of development and assist in increasing sales. It would also be advisable to incorporate a mini healthcare centre where basic care can be given and short-term aftercare hospitalisation offered. This area of the development can be then marketed to medical practices and geriatric departments of private hospitals within South Africa. It may also be feasible to obtain an endorsement from TISA (Time Share Institute of South Africa) and therefore register the village with RCI as an option for their senior members.
For useful information for developers on a combination of Sectional Title and Life Right Assisted Living please contact Olympic Hervasa Group.
A village that combines these two types of operation offers benefits to both residents and the developers. From an operating point of view, it is less complicated than offering full healthcare and also requires less staff, thereby reducing running costs. If this were to be the preferred option, it would be advisable to build a separate section for Assisted Living and retain the existing house as a dining room and a guesthouse for out-of-town family and friends of residents. The guesthouse would serve as an excellent promotional tool.
HERVASA have developed a table whereby various sales scenarios can be assessed to show the feasibility of a project (for more specialised information please contact Olympic Hervasa Group).
All villages charge a monthly levy and have optional services on a ‘user pays’ basis. This service charge will differ between villages and estates, as facilities offered by different villages or estates vary considerably.
The service charge will normally include sewerage, water, rates and external or internal maintenance of villas and units. It could cover garden and lawn maintenance, building repairs and maintenance, fire insurance, village bus, management and nursing staff and the operation of an emergency call system.
The choice is yours. Visit member villages accredited by HERVASA and see the many attractive and varied opportunities available to you and your loved ones.