protection for retired home buyers
08 May 2008

The growing trend towards early retirement, together with the attraction of the nurturing community feel of a safe environment for retired people has led to steady growth in demand for retirement villages.

Retirees, young and old, are reliant on secure investments, not only in terms of health but from a financial perspective. South African pensioners have had their fingers badly burned with the R650 million Masterbond scandal that rocked the financial market in the early 1990s was the biggest corporate collapse in South African history, in which thousands of elderly investors lost their lifelong savings to a participation bond scam. The Housing Development Schemes for Retired Persons Act 65 of 1988 was promulgated to do exactly that it protects the investor and strictly regulates the process of selling property to retirees.

"The Act is designed to regulate the process of selling property to retired people and to protect property owners from being exploited by unethical investors or developers. It constitutes a wealth of disclosures and provisions, binding developers to strict requirements and commitments, all with the financial security of the investor in mind," explains Gomes.

The Act requires that, in terms of the sales contract, all details of the property, from description of and information about the site, the architectural design of the home, the seller's financial credentials, financial background of the site such as whether there is a mortgage bond on the property and other pertinent historical information together with a copy of the title deed, should be made available to the potential buyer. The law specifies that developers of retirement villages cannot receive any payment from buyers before a qualified quantity surveyor or architect has certified that the property conforms with approved plans and local by-laws, and that the title deed is legally endorsed.

Ten percent of the sum of the purchaser's payment to the developer is held back by the trust, only available to the developer once all requirements have been met and the property is transferred, securing ownership for the investor. Developers are also required to provide banks with weekly cashflow analyses of their progress, which ensures responsible financial management during the various development phases of the retirement village. Detailed disclosure of communal amenities such as clubhouse, healthcare, frail care and, in many cases, dining facilities in the retirement village, has to be provided, together with a time line specifying the expected completion date for each. Levies must be forecast and set for a three year period, and are legally bound to provide a detailed breakdown of exactly what the levies cover.

Russell Masters, project co-ordinator of Schonenberg Retirement Village, says 'levy creep' is a common trap investors in retirement villages can fall prey to. In an attempt to hook potential buyers, disreputable developers under-quote levy charges by omitting the costs of fundamental services. Only once the purchaser is tied in to the sales agreement, they introduce 'special levies' and other monthly add-on costs for things like management of frail care and maintenance of facilities, all of which should have been included in the basic levy charge.

"Professional, reputable developers believe transparency is crucial. Levies should rather be quoted on an all-inclusive basis, covering the use, management and maintenance of all facilities. A detailed breakdown of all costs should be provided in the sales pack so the purchaser knows upfront what to expect and to budget for," says Masters.

The Housing Development Scheme for Retired Persons Act keeps developers on their toes and their pencils sharpened, ultimately protecting the unsuspecting buyer from falling prey to investment scams.

For more information contact Russell Masters on 083 457 2007 or 021 852 0821 or visit www.schonenbergvillage.co.za.

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