In view of planning for retirement, it is advisable for older people to downscale as soon as possible and not wait until a better price for your current property can be achieved.

Not only is it cheaper to buy and maintain a smaller property, but properties in retirement villages are also not getting cheaper.

“It is true that there has as yet been only a small rise in prices, but the number of houses sold has now risen year-on-year (y/y) by 20%,” said Lanice Steward, MD of the Cape agency Anne Porter Knight Frank (APKF).

“As the latest FNB survey has shown, in the second quarter of 2010 Western Cape house price inflation accelerated to 13,8% y/y – up from 8,7% in the first quarter, with a quarter-on-quarter (q/q) growth rate accelerating marginally from 3,9% in quarter one to 4,2% in quarter two.”

This, she said, is further evidence that the “prudent” National Credit Act (NCA) has proved to be exactly what the country needed. “And it has very definitely prevented SA experiencing the severest effects of the collapse in the market that the UK and the USA went through.”

Where there has been a noticeable slowdown, said Steward, is in the flow of people scaling down to retirement villages.

“There is a tendency here to wait until the market will give a better price for the homeowner’s current house. As I have said before, this strategy can backfire because retirement villages also increase in price y/y and the current vacancies in the villages could come to an end. It is best, therefore, to ‘go for it’ now rather than await better conditions down the line.”

Harcourts Africa CEO Martin Schultheiss says the prospect of a carefree retirement at the traditional age of 60 to 65 is becoming an increasingly remote possibility for many people. “It is therefore prudent to take the necessary steps with your finances and properties.”

Schultheiss says proper planning can bring it closer, and one of the most important elements of that planning should be to pay off debts – including home loans – as early as possible.

“The Association for Savings and Investment (Asisa) calculated earlier this year that the average monthly pension in SA is less than R3k, and advised that people should keep working for as long as possible to preserve their capital instead of using it to fund their retirement.

“It also said consumers should use any spare cash while they were still earning to pay off debts and then invest more for retirement, even if this meant deferring their material aspirations for several years.

“And we would like to add that following this course will also enable homeowners to derive the most benefit from downsizing to a smaller property, which has become something of a staple in retirement planning.”

Schultheiss notes that the housing crash of 2008 and 2009 was particularly tough on the upper end of the market to which many 50 and 60-somethings had already graduated. “This narrowed the gap between the upper and middle markets and in many areas still means that smaller homes are now not all that much cheaper to buy.

“In addition, many homeowners borrowed heavily against the equity in their large properties during the last boom and increased their mortgage burdens, making it even more difficult for them to make a profit on trading down now.”

Nevertheless, he says, it still makes sense to downsize. “In fact, we suggest that people make the move as soon as they become empty-nesters. Middle-aged homeowners spend between 20% and 50% of their incomes on housing costs and most can achieve considerable savings by moving to a smaller property that is cheaper to run and easier to maintain, even if their bond repayment is not that much lower than before.

“These savings can then be put towards paying off the property and other debt so that they are ‘free and clear’ when they do retire, and can enjoy a better quality of life in their later years.” – Eugene Brink

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