PROPERTY ANNUITY AS AN OPPORTUNITY FOR INVESTORS AND PROPERTY OWNERS

In her article in the Standard, Bernadette Redl sums it up: “Sometimes a large house is more a curse than a blessing. (…) Many empty rooms, a large garden that requires a lot of care, lack of barrier-free access, 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 face the question of how they can utilize their property to spend their later years in comfort and security, fulfill long-held wishes, ease care needs, and enhance their quality of life in retirement. In this article, we would like to address some questions regarding residential rights, life annuities, and the options for monetizing home ownership.

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

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

While these models have not yet gained much traction in Austria, property leasing in France (Film tip: My Old Lady) and Germany is already widespread. In the UK and the USA, terms like "sell and stay" or "eat your brick" are now indispensable in the real estate market.

WHAT IS UNDERSTOOD BY A LIFE 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 value of the property, 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 of residence for the former owner is also agreed upon. 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 in order to gain financial security and flexibility in old age.

The seller generally has no claims to the residential rights 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 regulating how a life annuity transaction should look. The terms can be designed 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 a life annuity lies in the source of your monthly payments. A reverse mortgage is a loan agreement where you rent out 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 life, without you continuing to be 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 RESIDENCE?

The right of residence is a personal servitude and is part of property law. It entitles the benefitted person 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 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 top priority in the land register! Only this provides the holder of the right of residence with the highest level of security to 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 may continue 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. However, there is the possibility that the right of residence may be surrendered prematurely. Such a surrender 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 right of residence holder must bear the costs for maintenance, including additional costs such as heating, electricity, water, gas, and waste disposal, as well as small repairs. Larger repairs or renovation work are the responsibility of the owner.

WHY INVEST IN A PROPERTY WITH LIVING 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 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 value appreciation: As with buyers, investors also have the opportunity to benefit from the appreciation in the property’s value.

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

Take a look at our current properties with residential rights!