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Making real estate real in Namibia

When it comes to scaling down for retirement, searching for the right home is probably the most important decision you will need to make. This, of course, can greatly depend on affordability and the kind of lifestyle you would like, but according to Cape Town conveyancing attorney and estate law expert, Michelle Dommisse, Director of Michelle Dommisse & Associates, it’s a decision that can also have a significant impact on the inevitable ‘end of life legalities’ that we leave behind.

“When it comes to purchasing a retirement home, today there is either the option of investing in a Life Right or a sectional title unit, across all price bands,” says Dommisse.

Life rights in a nutshell

In broad terms, a life right is usually a more affordable option especially because there is no transfer duty payable on purchase. Another advantage is that there is no heavy maintenance for owners and levies are usually forecast in advance. When the purchaser dies, another advantage would be that there is no capital gains tax payable and the full purchase price is refunded to the owner’s estate, less a small administration fee.

“Some life right developers share a percentage of the capital appreciation with the person who purchases the life right (or his or her estate). We have had sight of life right agreements where the developer shares 15% of the profit, and retains 85% of the profit and we have seen agreements where there is no sharing of the profit.

“A Life Right is an excellent retirement option, but like everything it also has its risks. I always ask my clients if the Life Right they are buying includes a frail care facility, because in many cases, residents are only allowed to live there as long as they can live independently. If they cannot, they can be forced to sell and move to another facility,” says Dommisse.

Sectional title retirement

So how does this compare to sectional title retirement options, you may ask.

As is the case with most property purchases, the concepts of lifestyle and location are key and there is no doubt that both drive long-term capital appreciation.

“If one has decided to live in an area that is in high demand and is consistently going up in value, it makes sense to want to achieve 100% of the profit -  and even with the inevitable capital gains tax penalty -  this could still greatly benefit your estate when the time comes to sell.”

“Having said that, I find that in many cases it boils down to an emotional rather than a financial decision. Even for a retiree, there is something very appealing about owning your own home, having pets and even a garden, especially while you are still fit and want your independence and space.

In many cases, Life Right options do allow pets, but the process is very restrictive because of the apartment-style model and small spaces.

“Then there are places in the Western Cape, like Helderberg Village in Somerset West, that are difficult to compare because while it is a sectional title development that typically yields high investment returns because of its location and because it has been established over 30 years, it also offers the advantages of high security, a community lifestyle and onsite healthcare of many good Life Right options. For retirees who can afford this, it is one of those that encompass the best of both worlds,” says Dommisse.  

How can this choice affect one’s estate?  

The importance of a well-drafted will for those who want to provide for the best interests of their loved ones cannot be under-estimated says Dommisse.

“Apart from Estate Duty, which is applicable for any estate over R3.5million, there are ways to structure an estate so that the inevitable implications of capital gains and income tax are minimised. Remember that an estate can take up to a year to wind up, so funds which are usually placed in an investment on behalf of the family, will be subject income tax,” says Dommisse.

But how does property ownership affect an estate?

“One of the most common things I hear from my clients during estate planning is: ‘everything needs to be fair. I have five children and five properties, so just divide my estate equally.’

“This means that each child will receive a 20% ownership of five properties, whereas, it would actually be better to leave each property to a specific individual. The reason for this is simple - transfer duty is not applicable when property is bequeathed in a will so an enormous amount would be saved for the estate,” says Dommisse.

End of life legalities can be very complex says Dommisse who warns that even small oversights can be very costly, especially for the wealthy.

“Unfortunately an off-the-shelf will, as opposed to using an estate expert can end up costing your loved ones. A simple example would be the absence of a special clause that states that your appointed executor does not have to pay a bond of security to the master. If this is not stipulated, it can end up costing 0.5% of an estate, unnecessarily.”

Of course there are many other factors than can impact an estate and contribute to a well-structured will, but when deciding on a retirement property option, these are some to consider.