This market is becoming an investment opportunity for buyers and, for sellers, a response to a downside of longer life-expectancy
The life annuity market, hitherto somewhat confidential since it only accounts for 5,000 to 8,000 sales per year, has over the past three years become an increasingly popular option. New buyers, individuals and investment funds now see it as an investment and savings opportunity, and a growing number of vendors see it as an answer to a need for money.
"With an increasingly longer life expectancy, there is consequently an increased risk of needing long-term home help or expensive institutions, an increasingly complicated necessity as income from pensions drop. Add to this the desire to help one’s children when they really need it and a wish to settle one’s estate during one’s lifetime… all are factors that encourage an increasing number to consider the life annuity option” according to Vincent IIlouz and Nicolas Pettex of the Daniel Féau group, a luxury real estate specialist which has just created its life annuity department. “It offers an ideal solution in order to maintain a lifestyle."
A life annuity is a real estate sale in which payment for an asset takes the form of an immediate payment known as a "bouquet", and an annuity paid to the vendor until his or her death. The arrangement is particularly flexible: by mutual agreement the package can cover the total price with no annuity to follow. The property may be sold vacant, or alternatively occupied ad vitam by the vendor; if the vendor is required to vacate the asset, for example in order to move to a retirement home, the annuity may be reassessed according to the contract’s provisions...
Once the asset’s market price has been estimated, the expert applies a rebate taking into account its future occupation, which is itself variable according to the occupant(s) life expectancy, established according to mortality statistics such as the Daubry life annuity scale which takes into account age, gender and whether the vendor is single or a couple. For example, a beautiful apartment in Neuilly (Hauts-de Seine), owned by a 70-year-old female and estimated at just under 3 million euro, has been converted into a 300,000 euro “bouquet” and a 5,000-euro monthly life annuity. "This lady, who has no children, also avoids real-estate tax and can look to a serene future as there is no risk of not getting her money: in the event of default by the debtor, the annuitant recovers the asset with no compensation required” points out Reza Nakhaï, co-founder of Viva Viager.
No income tax
Regarding buyers, it is newcomers, SCI’s and investment funds that are reinvigorating the market. They are looking for quality properties in desirable locations and, if possible, without an annuity which eliminates the risk of having to continue to pay if the vendor overlaps his or her theoretical life expectancy.
"Buying an asset at a discounted price is an alternative to buy-to-let with no need to find a tenant, without the risk of unpaid rent and with the significant advantage that the occupant has an attachment to the property and will keep it well-maintained", points out Benjamin Mabille, manager of the family-owned company SCI Foncière Viager.
"From a fiscal point of view, no income tax or CSG, and a reduced basis for the calculation of transfer taxes and tax on real estate wealth" he adds. “Also, as a buyer, there is the added satisfaction of helping the elderly to remain in their home, to improve their income and to even avoid old-people’s homes by being able, with money coming in, to afford home help."
A solution favoured by investors is the purchase of the bare ownership, without an annuity, with the vendor retaining the usufruct of the asset and allowing him or her to occupy or rent the property. On the death of the usufructuary, the bare owner recovers full ownership with no added costs.
Should a life annuity owner be unable to continue to pay the annuity, he or she may resell, but conditions apply. “The resale of life annuities represents about 20% of the transactions that we carry out” specifies Reza Nakhaï. “The new purchaser takes over the annuity, with no change whatsoever in the contract."