REAL ESTATE DISSOLUTION AS AN OPPORTUNITY FOR INVESTORS AND PROPERTY OWNERS

In her article in the Standard, Bernadette Redl puts it succinctly: “Sometimes a big house is more a curse than a blessing. (…) Many empty rooms, a large garden that requires a lot of maintenance, lack of accessibility, and the account balance doesn't look particularly rosy either: In family-home-loving Austria, many older 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. We would like to address several questions regarding usufruct rights, life annuities, and the possibilities for managing home ownership in this article.

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 topic.

While these models have not yet gained much traction in Austria, real estate 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 integral to the real estate market.

WHAT IS UNDERSTOOD BY PENSION ANNUITY?

The property-related annuity is a financial arrangement in which the owner of a property transfers ownership to a buyer in exchange for 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 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, farmhouse, or commercial property. In Austria, there is no legal requirement that regulates how a life annuity transaction should look. The terms are 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 where you rent your home for life, while still remaining the owner of the house. In contrast, a life annuity merely grants you the right to live in the property for life, without you remaining the owner of the house. The repayment of mortgages can be made in installments or as a lump sum, while life annuities are usually issued by companies, whereas reverse mortgages are often offered by banks or insurance companies.

WHAT IS THE RIGHT TO RESIDE?

The right of residence is a personal servitude and is part of property law. It entitles the favored 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 may therefore extend to the entire property or may 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 registered in the land register.

Important: The right of residence should always be recorded as the first priority in the land register! Only this provides the usufructuary with the highest security that they will never lose 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, 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 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 is 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 distribution of costs is negotiable and depends on individual agreements. In the absence of a specific arrangement, the resident with rights must bear the costs of maintenance, 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 provide 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 real estate 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 demonstrate social responsibility while still benefiting from the property.

-         Potential for value appreciation: 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 knowledge and provide advice on the topic of real estate reverse annuity as an opportunity and investment option.

Check out our current properties with residential rights!