REAL ESTATE ANNUITY AS AN OPPORTUNITY FOR INVESTORS AND PROPERTY OWNERS

In her article in the Standard, Bernadette Redl hits the nail on the head: “Sometimes a large house is more of a curse than a blessing. (…) Many empty rooms, a big garden that requires a lot of care, lack of barrier-free access, and the account also doesn't look particularly rosy: In single-family home-loving Austria, many elderly people find themselves in such a situation.”

As people age, many face the question of how to utilize their property ownership to spend their later years in comfort and security, fulfill long-held wishes, ease caregiving, and enhance their quality of life in retirement. In this article, we would like to address some questions surrounding the right of residence, the life annuity, and the options for utilizing their own home.

The choice of the best model depends on individual preferences, age, and the associated payments.

Elijah Euler-Rolle, our expert on residential property law on the subject.

While these models have hardly taken hold in Austria, reverse mortgages are already widespread in France (Film tip: My Old Lady) and Germany. In Great Britain and the USA, terms like "sell and stay" or "eat your brick" are now indispensable in the real estate market.

WHAT IS UNDERSTOOD BY LIFE ANNUITY?

The real estate-related life annuity is a financial arrangement in which the owner of a property transfers ownership to a buyer and, in return, receives a lifelong annuity. The amount of the annuity depends on various factors, including the property value, the age of the owner, and current interest rates. The annuity is usually paid in monthly installments and is guaranteed for life, regardless of whether the initially agreed sum has been reached. A lifelong right of residence for the former owner is often also agreed upon. This model is particularly suitable for older property owners who need capital, wish to live in their property, but are willing to sell it to gain financial security and flexibility in old age.

The seller generally has no claims to the right of residence in the property.

A life annuity contract is therefore a sustainable alternative to the classic sale of a house, apartment, farm, or commercial property. In Austria, there is no legal requirement that regulates what a life annuity transaction should look like. The conditions can be individually designed and depend on the preferences of the contracting parties.

WHAT IS THE DIFFERENCE TO A REVERSE MORTGAGE?

The essential difference between a reverse mortgage and a life annuity lies in the source of your monthly payments. A reverse mortgage is a loan agreement where you rent your house for life while still remaining the owner of the house. In contrast, a life annuity only grants you the right to live in the property for your lifetime without remaining the owner of the house. Repayment of mortgages can be made in installments or as a lump sum, while life annuities are typically issued by companies, whereas reverse mortgages are often offered by banks or insurance companies.

WHAT IS THE RIGHT OF HABITATION?

The right of residence is a personal servitude and is part of property law. It entitles the beneficiary to use a property that does not belong to them. The specific arrangement of this legal relationship is established through an agreement between the parties involved. The right of residence can therefore extend to the entire property or be limited to certain areas and rooms. The legal binding effect of the right of residence comes into effect only after it has been notarized and recorded in the land register.

Important: The right of residence should always be registered in the first rank of the land register! Only this provides the right of residence holder with the highest security of never losing the right of residence.

·       Duration of the right of residence?

The right of residence can be variable in its duration – either as a time-limited, fixed-term right of residence or as a lifelong right of residence. In the case of a lifelong right of residence, the beneficiary has the right to use the property for the rest of their life, even after a change of ownership. This means that residents with a lifelong right of residence are allowed to continue living in the property even if the owner changes.

A lifetime right of residence remains in effect until the death of the beneficiary and cannot be inherited. However, there is the possibility that the right of residence may be given up early. Such a relinquishment can only occur through mutual agreement or at the request of the beneficiary.

·       Who bears which costs?

The cost distribution is negotiable and depends on individual agreements. In the absence of a specific arrangement, the resident with rights of residence must cover the costs for maintenance, including ancillary costs such as heating, electricity, water, gas, and waste disposal, as well as minor repairs. Larger repairs or renovation work are the responsibility of the owner.

WHY INVEST IN A PROPERTY WITH LIVING RIGHTS?

        Long-term investment: Real estate with a right of residence offers a long-term and stable investment opportunity, as the income is secured over time. This is especially an interesting investment option for young investors.

- Portfolio diversification: Investors can diversify their portfolio by investing in properties with residential rights to create various income sources and spread their risk.

Social Responsibility: Investors can grant housing rights to elderly people or needy families and show social responsibility while still benefiting from the property.

- Potential appreciation: Just like for buyers, investors also have the opportunity to benefit from the appreciation of the property.

We at AKKADIA are happy to provide you with our expertise and know-how and are pleased to advise you on the topic of real estate annuity as an opportunity and investment option.

Take a look at our current properties with residential rights!