For many South Africans, including SA’s ageing community, the bulk of their equity is tied up in one asset, their home.
But, should that home be relied on to fund retirement?
No, say Maystone Wealth’s certified financial planners. If it’s your home, it’s a non-performing asset.
“You can’t extract value out of it if you are living in it, nor is it generating an income,” explains Maystone’s Kevin Joss.
“Additional cash might be extracted when selling and downsizing. But it’s an uncertain variable and not something to be relied on. That also presumes you want to sell.
You don’t want to be put in a position where you are forced to sell to derive retirement income.”
Colleague Dino Paizes adds: “Capital upside from selling your house should be seen as a bonus, not part of your retirement plan or the income required to live on.”
While the risks associated with being forced to sell are reduced when the home is in a prime location, realising the expected equity is not always a given, especially in a challenging economic and political environment, caution Joss and Paizes.
House price growth is declining and 10.1% of homes are now selling at a deflated price.
Homes are also staying on the market longer, now 15.6 weeks compared to 11 weeks in 2015, says John Loos, household and property sector strategist at FNB.
Demand in particular for larger freehold homes – many of which are home to SA’s ageing population – is dwindling as the popularity of safe and secure smaller properties increases.
There has been a steady pattern of “life stage” downscaling from ageing households, which currently comprise 26% of total selling, by far the largest single group of home sellers in the third quarter of 2017.
Also rising is the percentage of homeowners downscaling due to financial pressure, now 14%, up from 11% in early 2016, according to FNB figures.
Where one’s home is the only asset to fund retirement, extracting the best and realistic value – whether from the proceeds of a sale or the renting out of the property – is paramount and best done with the guidance of a financial planner.
A good certified financial planner will weigh up replacement retirement home purchasing and rental options in conjunction with monthly income requirements.