It’s common cause that less than 5% of South Africans have sufficient retirement income but unlocking the value in their properties can go a long way towards a solution. “Financial planners place heavy emphasis on providing for the future of the younger generation, but little help is available for those who have already reached retirement age and are cash poor but asset rich in the form of their property,” points out Gerhard Kotzé, CEO of the ERA South Africa property group.
The good news is that there are numerous ways to tap into that value. Reverse mortgages, as they are known, are pioneering ‘equity-release’ products. Seniors Finance offers a product called SF Help, while Nedbank has launched its Home Income Plan.
Both basically assist senior citizens in unlocking value from their homes without having to sell them. “The principle of these products has been well tested overseas. Basically, the senior citizen homeowner is granted a loan based on the value of the property, rather than on his or her income level,” Kotzé explains.
In the case of the Nedbank product, for example, the borrower has to be at least 65 years of age, the minimum value of the property R850 000 and the minimum loan R200 000. The Nedbank loan is granted with the option of repaying or not repaying it. If the choice is the latter, the loan is repaid at the death of the borrower from the assets in the estate or by the surviving spouse, by which time the property should have increased in value.
“Good financial advice is needed before entering into one of these agreements, as with other options such as selling to your children. Parents can sell their homes to their children but need to beware of donations tax and transfer duty (payable by the buyers) and capital gains tax (payable by the sellers).
Published By: Property Trader, September 26, 2007