REAL ESTATE ANNUITY AS AN OPPORTUNITY FOR INVESTORS AND PROPERTY OWNERS

In her article in the Standard, Bernadette Redl puts it succinctly: “Sometimes a large house is more of a curse than a blessing. (…) Many empty rooms, a large garden that requires a lot of maintenance, lack of accessibility, and the bank account doesn’t look particularly rosy either: In single-family-home-obsessed Austria, many people find themselves in such a situation in old age.”

As people advance in age, many face the question of how they can use their property ownership to spend their retirement 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 regarding living rights, life annuities, and the options for utilizing one's 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 not yet gained much traction in Austria, real estate annuities 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" have become integral to the real estate market.

WHAT DO YOU UNDERSTAND BY ANNUITY?

The property-related life annuity is a financial agreement 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 owner's age, and current interest rates. The annuity is usually paid in monthly installments and is guaranteed for life, regardless of whether the originally agreed amount has been reached. Often, a lifelong right of residence for the former owner is 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 usually has no rights to reside 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 tailored individually 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 an 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, an annuity merely grants you the right to live in the property for life without you remaining the owner of the house. Repayment of mortgages can be made in installments or as a lump sum, while annuities are typically issued by companies, whereas reverse mortgages are often offered by banks or insurance companies.

WHAT IS LIVING RIGHTS?

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

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

·       Duration of the right of residence?

The right of residence can vary in duration – either as a limited, temporary 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 live 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. Nevertheless, there is the possibility that the right of residence can be relinquished prematurely. Such a relinquishment can only occur through mutual agreement or at least 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 occupant with the right to live must bear the maintenance costs, including ancillary costs such as heating, electricity, water, gas, and waste disposal as well as minor repairs. Major repairs or renovation work are the responsibility of the owner.

WHY INVEST IN A PROPERTY WITH RESIDENTIAL RIGHTS?

        Long-term Investment: Properties with a right of residence offer a long-term and stable investment opportunity, as the income is secured over time. This is particularly an interesting investment option for young investors.

- Portfolio Diversification: Investors can diversify their portfolio by investing in real estate with residential rights to create multiple income sources and spread their risk.

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

        Potential increase in value: As for buyers, investors also have the opportunity to benefit from the increase in value of the property.

We at AKKADIA are pleased to offer our expertise and know-how and are happy to advise you on the topic of property equity release as an opportunity and investment option.

Check out our current properties with residential rights!