Gauteng Business News

Send  Share  RSS  Twitter  09 Mar 2011

PROPERTY: Buy Now and Boost Your Retirement Savings


Recent Gauteng Business News

Low interest rates and still-depressed housing prices spell opportunity for middle-aged people concerned with improving their financial prospects on retirement.

“The usual scenario,” says Jan Davel, MD of the RealNet estate agency group, “ is for people to first retire, then sell their family home, then buy a retirement residence. But current prices are encouraging many to look at the benefits of acquiring their retirement residence sooner rather than later – and the positive effect this could have on their retirement planning.

“It is common knowledge that very few people retire with enough money to keep up their standard of living, but there is a growing understanding that this situation can be improved by retiring to a home that has already been paid off, which of course is much easier to achieve if one buys at a good price some years before one actually retires.

“And this is slowly starting to drive an increase of sales again in popular retirement areas and some of the holiday towns favoured by retirees, especially those where prices fell dramatically during the recession. These include small towns in the Karoo and Free State as well as coastal towns in the Eastern Cape, along the Garden Route and in KwaZulu-Natal.”

Some markets offer more favourable prospects than others, he notes. “In second-home hotspots that experienced a high level of repossessions during the recession, oversupply is likely to keep a lid on home prices for quite some time, giving retirement buyers more time to put their plans into action.

“Others did not encounter such extreme conditions and may now also be the target once again of holiday-home buyers, which means that you’ll have less time to seek out a bargain. But wherever you choose, there is no doubt that buying now will put more money in your pocket when you retire.”

For example, says Davel, if you buy a R500 000 retirement cottage now with a 20% deposit and a 20-year bond at an interest rate of 9%, the total cost including deposit will be R964 000. “But if you wait and the price goes up by just 5%, the total cost will be R1,07m, even if interest rates stay at the current very low levels, which they are not expected to do. That’s a difference of R53 000 you can put into your retirement savings.”

However, he cautions, those buying a retirement residence must be prepared to hold on to their investment. “No-one can time the bottom or the top of the market exactly, and home prices are most unlikely to appreciate at boom rates over the next few years, so you should be looking to keep the property for at least 10 years.”

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