Investing in retirement property

Young at heart, or just young and restless for a good financial opportunity, it turns out it’s never too early to add retirement properties to your investment portfolio.

Sixty may be the new 40, according to researchers who say people are hitting ‘middle age’ later, but investors in the sectional title retirement property market looking for solid returns are even younger – with some in their 30s.

Alan Beesley, director of Carmel Properties, developers of Shoreline Sibaya, an exclusive retirement living complex on the North Coast of KZN, is seeing it first-hand. ‘About 30% to 40% of our buyers are securing a stake in Shoreline Sibaya purely as an investment at a young age, whether it’s to take occupation themselves at their retirement age at today’s prices, or purely as a meaningful financial investment with an eye to significant capital growth.’

A sound investment opportunity is always appealing to those with financial savvy, and the growing retirement property industry, particularly in KwaZulu-Natal, is currently the fastest growing residential investment segment in the country, according to Natalie Bradfield, co-owner of Piccadilly Properties, agents for Shoreline Sibaya. ‘Due to the massive demand for top quality retirement accommodation in South Africa, it is typical for this type of property to see an additional 2% to 3% capital appreciation per year. The trend is now, for young professionals who are looking for investments, to purchase within a retirement lifestyle estate with the intention of securing not only a long-term investment, but also securing the ideal lifestyle for their parents to enjoy, as well as being assured that all of their health needs are taken care of,’ adds Bradfield.

Seemingly overnight, the retirement market has become too cool-for-school while old-age homes are just plain old-school. ‘The latest trend is seeing retirees moving away from traditional retirement homes and opting for flexible, active living within a residential community that includes benefits like leisure facilities and healthcare,’ says Sandra Gordon, Pam Golding Properties senior research analyst.

And the market is growing exponentially. Couple this with ever increasing longevity and the  burgeoning demand for retirement options due to an ongoing shortage of suitable, affordably priced retirement accommodation, and it becomes clear why an investment in this sector is something akin to a sure thing. As Gordon says, ‘With many retirees not in a position to purchase a home, there is a thriving rental market in the sector.’

Chairperson of the Rawson Group, Bill Rawson, agrees that these properties make a ‘great’ retirement investment. ‘While it may take a few years for a buy-to-let property to become profitable, between bank financing and rental returns it’s entirely possible to fund your investment predominantly with someone else’s cash.’

Another benefit of investing in retirement property at a young age, says Rawson, is that interest on a mortgage is tax deductible.

Shoreline Sibaya’s Alan Beesley says that buying into a R1.5 million unit and putting down 10% deposit will mean a bond of about R13,000 a month for 20 years. ‘Initially, you may have a shortfall of say R2,000 or R3,000 a month, but rentals escalate while bond repayments remain the same, and it will even out quickly.’

If investors are in a position to put down a 20% deposit, says Beesley, their rental will be adequately covered. Beesley has personally bought two units at Shoreline Sibaya. ‘Buying off-plan in phase one is usually the prudent way to go in this kind of investment, as you get in early enough to see major returns. Also, when buying off-plan you benefit from not having to pay transfer duty.’ While buying off-plan can come with some uncertainty, Beesley suggests that investors do some research on who is involved for peace of mind. In Shoreline Sibaya’s case, any perceived risk, he says, is mitigated by the developers’ good reputation and the fact that Tongaat Hulett, who are releasing the coastal land, is a major SA company.

Peet Strauss, PGP’s Johannesburg Development Manager, says: ‘Today’s older generation is remaining not only young at heart but pursuing a host of sports and keep-fit activities.’ He says estates like Heritage Estate, in Modderfontein, Johannesburg, near Modderfontein Nature Reserve, are a good example of what owners or investors are looking for these days. ‘It attracts investors of any age who either intend to live there or purchase and rent out their apartments or cottages to suitable tenants – the over 50s – at market-related rentals. Prices there start at R1.325 million.’

Says Strauss: ‘With the ongoing planned future development of Modderfontein, Heritage Estate offers a sound investment opportunity for buyers. Neighbouring secure estates such as Lakeside and Thornhill are home to upmarket residences that fetch prices from approximately R3 million to as much as R8.4 million.’ Making it marketable, besides the location, he says, are the ‘modern lock-up-and-go units with state-of-the-art security and a healthcare service, including both primary care and assisted living options’.

Bruwer de Jager, sales consultant of The Plettenberg Manor, says the first rule for potential investors is to get in early.

‘Investing in phase one off-plan will usually mean more capital appreciation than investing in phase three,’ he says, corroborating what Beesley says. He says the properties in The Plettenberg Manor – an exclusive retirement resort near Plettenberg Bay with assisted living apartments, luxury cottages and exclusive houses with private swimming pools – that started at R2.5 million are now worth R3.5 million. And at that price, it’s unlikely that a bond will be covered purely by rental. ‘The real value now in this development at the more exclusive end of the market lies in capital appreciation,’ says de Jager.
Petro de Jager, estate agent of Devmark Property Group’s seventh retirement development (Helderberg Manor in Somerset West), agrees that the retirement market is huge. ‘What you pay now is considerably less than what you’ll pay in a few years,’ she says, ‘so the return of capital is almost certain.’

She concurs with Bruwer de Jager (no relation). ‘In usual circumstances, the retirement market can only afford a specific ceiling in rental, so that may not cover your bond if it’s too high.’ Units at Helderberg Manor, located at the foot of the Helderberg Mountains, are selling for between R1.5 million and R3.5 million, so there is a good mix of options for retirees, she says.

Bill Rawson says a welcome feature in any property investment is that capital growth can create a very useful emergency nest egg.

‘While most retirement annuities have limits to how much capital you can withdraw as cash on retirement, properties can be sold at any time to liquidate their full value. Having that capital available in an emergency can be very comforting,’ Rawson says. ‘Retirement property makes an excellent investment, and the earlier you get started, the greater the rewards.’