I’m Michael Avery, anchor of Classic Business, and in studio with me today is Arthur Case, Evergreen Group CEO, who will provide industry insight and thought leadership on the life right purchase model. The retirement landscape in South Africa is shifting and lifestyle retirement villages are offering an alternative for those who can afford to live outside of the family home when it comes to retirement. We’re living longer, medical science is telling us that we are a generation that is rapidly approaching a hundred years or more, and what does that mean for our rapidly depleting finances when it gets to retirement age. The Sanlam Benchmark Survey reckons that a full third of us are not saving enough or have too much debt in retirement and now we have options, including either aging in the family home, scaling down, or living with family or either buying into one of these retirement villages. Today’s conversation is with Arthur Case, the CEO of Evergreen Group and is looking at one of those options – the Life Right model of retirement villages. Arthur good to see you. Good to be here, Michael. Now set the scene for us here – what are those top of mind issues for seniors approaching retirement, or either in retirement. Michael that’s really easy – there’s two issues. It’s issues of money and independence. It’s quite sad, sometimes, when you speak to seniors, that some of them are more fearful of living than they are of dying. And what I mean by that is so many people get to a stage in life where it’s time to retire, where it’s no longer easy to to generate an income, they’re reliant on retirement funds and that’s a real it’s a big concern with inflation and other things that eat away at retirement income. The second issue I mentioned is independence – many seniors are fearful of losing their independence or fearful of when they do, who is going to take care of me – maybe my kids are overseas in Australia, it’s me and my spouse, and when I can’t preserve my own dignity who’s going to do that for me? So any retirement operators who are playing in the retirement space need to be able to answer to those two issues; to be able to provide product and solutions that are both affordable and sustainable over time, and also to be able to assist people as they start to lose their independence. And it is a big issue when I chat to people in the asset management industry, in the retirement funding game, that they say there isn’t enough education and awareness done around the options that are available when we do retire so we really need to start planning a whole lot better and it all comes down to, I think, being prepared. Now when we look at a life right model I mean what is that, and how does it differ from other retirement models? The life right offers purchasers security of tenure for life, and I reckon that the main difference between say Life Right and sectional title and some of the other models is that the life right developer is committed to the long-term. Your sectional title development developer, for example, and we have nothing against sectional title schemes, but the sectional title developer is going to develop the scheme and the moment it’s sold out is going to move on to the next project where as a Life Right developer is invested for life. The moment that you sign your first life right agreement, you take on a very long-term liability. You move into a retirement village which is managed for you, the owner of the property, the life right developer, is responsible for looking after that property, both in terms of your unit and the common areas, and at the same time taking on the burden of estate management – managing the estate for you, making sure that the services that people need as they age are in place making sure that we’re able to run those facilities economically and to be able to keep levies in check. Those are all of the sort of things that the life right model provides to the life right purchaser. So if I’m a retiree and I’m asking you what are the benefits, Arthur, of me buying into an evergreen life right model, what would you list as those key benefits. Okay well we’ve mentioned security of tenure for life, that’s a given, and we’ve spoken about the long term commitment of the developer to the estate that you buy into. The next interesting thing is the issue of flexible purchase pricing. Because of the life right model we are able to introduce some flexibility into the purchase price to make the product more affordable for our residents. Something that many people don’t know that is in the retirement act or the housing development schemes act, it precludes a life right developer from exercising special levies. This is a big risk if you buy into a sectional title village, in that the moment that is there’s a need for capital to either carry out some serious maintenance or to provide additional facilities, the only source of capital for that estate is through a special levy. The sectional title developer is going to get one bite at the cherry, so he’s going to want to maximize his return on capital in selling out that village. The life right developer takes a much longer term view and we will even on occasions sell out our villages at at significant discounts to be able to, one, accommodate the purchaser in terms of affordability and, two, to increase our rate of sale and we take the long view in terms of we get a return and annuity income return if you like 10, 12, 20 years down the track. Well that leads me into my next question because I was going to ask you to expand on the flexible purchasing price component of this because surely a price list is determined by the value of the housing unit – how does that work? Well we, like the sectional title developer, we have a price list we would like to recover the development and construction costs that went into developing the village, but because we take a long-term view we’re able to play with that purchase price, so we’re able to play, if you like, with the purchase price versus the capital return on termination so if I need to reduce the purchase price to make the unit more affordable for you in terms of the capital you have, I can compensate for that by reducing, or adjusting, the capital return at the termination of the life right. So it’s a wonderful, flexible product. For example, an example is it could be that the purchaser has the family home, let’s say the family home is worth three million rand they’re able to sell for 3 million rand and I might be prepared to sell them a three million rand life right for two million and they are able to liberate, if you like, a million rand which can go into funding a retirement lifestyle and and my group is prepared to wait a long time in terms of a return by way of the eventual annuity income that comes as life rights recycle or are resold. And that’s so important, as i said in my introduction, with a full third of retirees retiring with too much debt at the moment, and we know that we’re not saving enough for retirement, it’s those sorts of flexible solutions that can really make a big difference at the end of the day. Now, I understand the model, but why would i want to buy into something that doesn’t give me that capital growth when I could buy into a sectional title retirement village? Well I think that the answer to that is this long-term commitment of the life right developer – that’s what you’re buying into. So I sometimes say to people if you’re looking for an investment then go and talk to Allan Gray, but if you’re looking for a investment in a lifestyle, and an infrastructure, and a group of people who are going to care for you until the end of your days, then the life right investment becomes the the option to go for. What is good for the developer is generally good for the life right holder, and vice versa, but I’ve not fully answered your question – so you know I would want to buy into a life right because first of all there is the flexibility of the life right model which can help me both in terms of purchase price, and also in terms of affordability around levies, and, secondly, I’m going to be buying into a fully managed facility run by people whose whole business and profession is linked to providing a great retirement product. Now, levies – it’s the big “L” word, I think whenever one talks about sectional title or life right, one gets scared because levies may become unaffordable over time, and it sounds good now but who knows what extra levy may be imposed in two years from now. How are the levies governed and structured and regulated in a Life Right model? Over time as a property ages, it requires investment, just in terms of general maintenance, but sometimes you may need to replace equipment, you may need to build additional structures, and the only way that that can be done in a sectional title village would be to to exercise a special levy. And these are not uncommon in retirement villages – people being asked to pay a fairly sizable special levy to fund maintenance or something like that. Now in the life right development, the Act precludes that so the life right developer, if a capital investment is required, is going to be making that investment – not the retiree who has limited capital resources available to them, because the Act says that you may not charge a special levy. You need to predict the levy two years in advance so that the purchaser knows exactly what price they’re going to be paying, and for which services, and thereafter you may increase your levies annually, but you may not charge special levies. So special levies is one big issue that is important. And just one more thing, Michael, I’d like to mention as an additional issue of a safety net that exists in the life right village which you you won’t find in a sectional title village, and that is that the life right capital, if you like, the capital that is going to be returned to the life right holders’ estate one day, offers a security net that if a life right holder finds, for reasons beyond their control, that they fall upon hard times, and they’re battling to pay levies, a life right developer can use that life right capital in order to assist the life right holder to afford levies in the future in exchange for a reduction of the capital that will be returned to the estate when the life right holder passes on. Now to liberate capital in a sectional title scheme I have to sell my unit to be able to do so. In the Life Right scheme I don’t have to, though, I’ve got the roof over my head, I have security of tenure for life, but I can use that life right capital if you like, and obviously in extreme circumstances we wouldn’t want everybody to be doing that, but in extreme circumstances there’s a safety net there which was built into this fantastically flexible life right model. Well, once again, that flexibility I think puts it head and shoulders above certain other options in the market – almost like an access bond if you think about it, as well. You could think about it that way, yes. Now, if I’m persuaded to purchase a life right, then what do i need to look out for when I’m choosing a village? As you said earlier, not all the life right models are the same. Yes well I think if you’re talking about purchasing into a retirement estate of whatever description, you know one of the things you want to do is make sure that you choose your location well because, particularly if you’re buying a life right, you don’t want to be buying and selling because there is a depreciation of the capital amount, so you want to choose your location well; you want to buy in the right place; you want to hopefully buy close to your support network, your family and friends. We use the term “destination retirement” – we warn people be careful of that fantastic dream of going down to the coast or disappearing into the country into your retirement village, and you arrive there and find that your entire support structure is not with you, so that would be the first thing – choose well. The second important thing when considering something like this would be to make sure that you understand what the levees entail. You were making the point earlier – what do the levees cover? What are they going to cost me? What kind of levy escalation can I anticipate over time? I’m going to want to make sure that the village I purchase into is going to have the range of services that i need, and particularly as I age. Once again more important I would say in a life right development than any other kind of retirement village, make sure that there is continuous care. None of us really know what our health is going to do over time, but make sure that in your life right village, should you need it, there is access to primary health care; there’s access to frail care, if you need it. I mean – difficult conversations to have – but very important conversations to have as well, and very often I think we as the Sandwich Generation are not having this conversation with our Baby Boomer parents, and it’s certainly a conversation that we need to have early on, so we can be making the right informed choices, and ensuring that we don’t end up with the wrong outcome. Absolutely and you know you’ve touched on something so important. In most instances, kids and their parents are not having this conversation, and the children of Boomers can be so helpful in terms of having this conversation with their parents in terms of what their requirements are going to be over time; whether they can afford a retirement lifestyle; whether the retirement choice they make fits into the family plan. Arthur, I’m actually at that stage in my life where my siblings, my brother and sister and I, are having this very same conversation about how we can look after our parents and it was very interesting to you talk about the the option of being able to do this for your parents. So here’s the million-dollar question, Arthur. Would you, Arthur Case, buy into a life right retirement village? Putting me on the spot, Michael, but the answer is absolutely yes I would. In fact a life right village is the only type of retirement village I would buy into because I know too much, and I have the benefit in Cape Town that we’ve got beautiful villages in Muizenberg and Bergvliet, and Noordhoek, and Diep River. We’ll very shortly be breaking ground in Paarl at the beautiful Val De Vie estate – a large village there. We’ll be in Somerset West, so I’m going to have lots of choice. And, of course, we do have product elsewhere in the country and we want to increase our footprint on a national basis so that not everybody has to move down to Cape John to enjoy Evergreen. I was going to say you’re going to have to start building more so that people don’t have to move down to the coast. Absolutely – that’s our plan. We want to be a national retirement brand and we also wish to be – we want to be seen as thought leaders in the retirement industry. As we round this off, are there any points of interest that listeners should be considering that perhaps we haven’t touched on? I think we’ve actually had a very good conversation, perhaps just to say that I’m personally so passionate about the retirement industry. It’s a fantastic time in South Africa to be in the space. Things are changing, new players are coming into the market, new products are being designed, and at Evergreen we really we believe that we can change revolutionise the retirement industry and change the way that people retire. And we don’t mean that arrogantly, we just think that there is so much that we can do differently to create a really great product that is both affordable, and that will make retirement so much easier for many people.It’s our passion and it’s what we hope to be doing for many many years to come. Well, Arthur, that vision and that passion certainly come through in abundance and wonderful to hear more about the life right model and what Evergreen is doing in the space. Thanks for taking the time. Thanks, Michael, thank you – I enjoyed it very much.