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 too rosy either: In single-family home-loving Austria, many elderly people find themselves in such a situation.”

As people advance in age, many face the question of how to utilize their property ownership to spend their retirement in comfort and security, fulfill long-held desires, facilitate care, 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 possibilities of liquidating the family home.

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

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

While these models have hardly taken hold in Austria, real estate retirement is 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 an integral part of the real estate market.

WHAT DO WE UNDERSTAND BY LIFE ANNUITY?

The real estate-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 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 originally agreed sum has been reached. Often, a lifelong right to reside is also agreed upon for the former owner. This model is particularly well-suited 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 rights 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, farmhouse, or commercial property. In Austria, there is no legal requirement that regulates how a life annuity transaction should look. The terms are individually customizable 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 in which you rent your home 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 life without you 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 TO HOUSING?

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 involved parties. The right of residence can thus extend to the entire property or be limited to specific areas and rooms. The legal binding effect of the right of residence only comes into force after it has been notarized and recorded in the land register.

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

·       Duration of the right of residence?

The right of residence can vary in duration - either as a time-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  life-long 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 is relinquished 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 holder of the residential rights must bear the costs for maintenance, including additional 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 residential rights offer a long-term and stable investment opportunity, as the income is secured over time. Especially an interesting investment option for young investors.

- Diversification of the portfolio: Investors can diversify their portfolio by investing in properties with residential rights to create different sources of income and spread their risk.

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

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

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

Check out our current properties with residential rights!