REAL ESTATE ANNUITY AS A CHANCE 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-loving Austria, many people find themselves in such a situation as they age.”

As people age, many find themselves facing the question of how to leverage their property ownership to enjoy their retirement in comfort and security, fulfill long-held wishes, facilitate care, and enhance their quality of life in retirement. In this article, we would like to address some questions surrounding the right of residence, the annuity, 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 for residential law objects on the subject.

While these models have yet to gain 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" have become indispensable in the real estate market.

WHAT IS MEANT BY LIFE ANNUITY?

The real estate-related 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 value of the property, the age of the owner, and current interest rates. The annuity is usually paid out 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 especially 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 typically has no claims to the right of residence in the property.

A lifetime 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 governs how a lifetime annuity transaction should be structured. The terms are individually customizable and depend on the preferences of the contracting parties.

WHAT IS THE DIFFERENCE TO THE 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 out 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 the rest of your life, without you remaining the owner of the house. The repayment of mortgages can be done in installments or as a lump sum, whereas life annuities are typically issued by companies, while reverse mortgages are often offered by banks or insurance companies.

WHAT IS THE RIGHT OF RESIDENCE?

The right of residence is a personal servitude and is part of real estate law. It entitles the beneficiary to use a property that they do not own. 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 specific areas and rooms. The legal validity of the right of residence only takes effect after it has been notarized and recorded in the land registry.

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 temporally limited, fixed 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  lifelong 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 will be relinquished early. Such 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 tenant with the right of residence must bear the costs for 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 A LIVING RIGHT?

        Long-term investment: Real estate with residential rights 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.

-         Diversification of the Portfolio: 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 housing rights to elderly people or needy families and show social responsibility while still benefiting from the property.

        Potential increase in value: Just as 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 knowledge 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!