Blue Chip Journal - June 2019 edition

RETIREMENT
In it for the long run
The life right model may be the right choice for retirement
An important retirement decision
is whether to remain on the
property ladder or purchase a life
right in a retirement development.
Financial advisors would do well to consider
the many benefits of the latter, argues Arthur
Case, Brand Marketing Director of Evergreen
Lifestyle, leading South African retirement
living provider and joint venture between
the Amdec Group and PSG Group.
Evergreen is on a surge, expecting to
grow its footprint this financial year from
a total of 570 to 1200 retirement units in
developments in the Western Cape and
Gauteng.
“The demand is there and we feel we’ve
got the model right,” comments Case. “Our
ambition is to grow to 10 000 units with
assets of R30-billion.”
This confidence is supported by current
industry trends, especially a generational
shift as the so-called Baby Boomers enter
the retirement village market.
“The oldest of them are in their early
70s, and they want a lifestyle rather than a
nursing model,” says Case. “They’re looking
for beautiful homes and facilities, some
are moving in before they finish working,
and they want to enjoy a lock-up-and-go
lifestyle where everything is taken care of.
Older residents also require continuous
care facilities.”
Continuous care involves a significant
investment from the developer in terms of
facilities as well as keeping units operating
in the early days when take-up is lower.
“Few medical aids pay for frail care but
they do pay for medical procedures. The
smallest centres we’re building are around
2 000m², with a minimum of 32 beds,
and will cater for both frail and dementia
care, but our bigger villages will have
much bigger care centres with sub-acute
facilities,” says Case.
The life rights model is underpinned by
the strongest property right in South Africa,
as contained in the Housing Development
Schemes for Retired Persons Act No 65 of
1988 (HRP Act). The main benefit is that
the life right developer remains involved
literally for life, unlike the comparative
sectional title or freehold individual title
retirement village, where the developer
departs once the last unit is sold.
“Sectional title schemes often build frailcare
centres that are not suitable and the
operation and funding burden is left to the
residents via their Body Corporate. In many
instances these facilities are closed down or
repurposed because residents do not have
the resources and expertise to run these
centres,” says Case.
There are no transfer duties or VAT, and
no special levies are permitted in terms of
the Act.
“Over time, a 650-unit estate is going
to need investment, and that investment
comes from the life right developer, never
the resident. They only pay their service
levy monthly,” says Case.
“We continually reinvest to keep our
villages pristine. During the threat of Day
Zero in Cape Town, for example, we sank
boreholes and installed water purification
plants because we wouldn’t want our
residents to queue for water.”
Flexible purchase pricing is another
advantage: “If you’re selling a R2-million unit
with a 100% capital return on termination,
you can offer it at a low purchase price and
adjust the capital return at the end of the
life right to accommodate a lower, more
affordable purchase price.”
In emergencies, residents can liberate capital
from the life right capital during their
tenure towards funding arrear levies or care.
For middle to upper middle income
South Africans, the life right model
removes some of the risks of outliving their
retirement capital.
“Purchasers are more concerned about
levy inflation and affordability than the
ticket price,” says Case. “To assist, we don’t
Arthur Case, Brand Marketing Director
profit from levies whatsoever, nor do we
charge a management fee.”
Case encourages financial planners to
acquire a thorough understanding of
the life right model before dispensing
retirement advice.
“The mindset has to go beyond just
preserving and growing the retirement
asset – that retiring person has a range
of needs. For example, many seniors will
actually prejudice their retirement lifestyle
in order to leave a legacy. Advisors need to
be able to advise clients to look after their
own retirement first – if there is a surplus at
the end, then that can go to the children.”
To determine which life-right retirement
product is best suited to your clients' needs,
Case suggests:
• Look for strong shareholders, an operator
with a solid track record and credentials,
and scale developments – the biggest
defence against levy inflation is scale.
• Look for continuous care – you don’t
want someone purchasing a retirement
product and having to relocate seven
years later when the need for care arises.
• Make sure the location is right, that they
don’t move away from their support
networks, that they understand the pros
and cons of the purchase model, and then
look at affordability going forward.
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