Colonel A Sridharan, VSM
Vanakkam! I am Colonel Achal Sridharan – Founder & MD of CovaiCare
We are considered as the pioneer in senior living and care, with over 14 years of experience. We have been studying the elder segment and notice that:
> Longevity is a fact– we elders live longer. In 2018, in one of our retirement communities, based on eleven of CovaiCare family members who left for their heavenly abode, their average age was 83 years.
> Cost of living and care expensesare increasing with the passage of time.
> Interest Rates are falling and inflation is increasing and thus,eroding savings of the elders. View it in the context of longevity – it is a serious issue.
> Capital investmentfor a retirement property is high. Lease model is practically non-existent. Need to reduce capital costs.
> The investment options for younger generationsbetween 35 and 55 years of age could be Stock Market, Mutual Funds, Fixed Deposits and Real state. Each has its own pros ad cons and one does not put all eggs in one basket.
> ROIof retirement property in a retirement community is much higher than the one in real estate
> Why not consider retirement propertyas one of the investment options?
> If the ROI is better than real estate, surely this option can be considered.
Raman retired as a senior management professional and is 70 years of age. He lives with his wife Kamala (66 yrs) in an apartment, which is part of Gem Nirmaalayam Gated community in Coimbatore. He has saved enough for his and wife’s old age, but not enough for the longevity due to better health care, lifestyle and wellness. Their two children are well settled – the daughter lives in Ahmedabad working for a MNC and the son is a Doctor in the UK. Both are married.
Of late Ramans are worried about their back up plan should their health take a beating with advancing age or one of them is physically or intellectually incapacitated (Dementia or Alzheimer’s) or the domestic help, which of late is becoming scarce becomes unavailable. Moving to a retirement community would entail selling their present property and investing that money to meet the cost of care. They do not want to ask their children for any monetary help.
Kannan is 40 years old engineer working as a Middle level management professional in New Delhi. He is married to Sita and, they have a son going to school. Sita is also employed. Kannan and his wife decide to invest in a retirement community property in Ozone Urbana Township in Bengaluru and whose residents get services and care from CovaiCare.
Their budget is Rs 50 lakhs and they can get housing loan up to Rs 40 lacs (80% of the cost of property), based on their age and repayment capacity.
The Head of Sales of CovaiCare offers them the Win – Win Concept evolved by Team CovaiCare, which gives a higher ROI for Kannans and also makes, Ramans happy! How is it possible?
CovaiCare’s concept is based on:
Invest less while you earn and enjoy more, if you are retired
Retirement Property value – Rs 50 lakhs Loan entitlement – Rs 40 lakhs
i. Kannans:
a. Kannans invest Rs 50 lacs with Rs 40 lacs (80%) as loan amount. They pay Rs 10 lacs from their savings (20%) They enter into an Sale and Construction Agreement as well as Services Agreement with CovaiCare.
b. Let us say that it takes three years for the project to be ready. They pay interest to the bank or the Housing Finance Company from whom they borrow the loan amount as per loan disbursal against progress of construction.
c. The interest component @ 9% Fixed rate will work out to about Rs 7 lacs.
d. The net value of the retirement property is now Rs 57 lakhs
e. On possession, Kannans give the property to Ramans on 15 years Lease. The Lease Deed is registered with CovaiCare as the Confirming Party. Cost of registration is borne by both the Lessor (Kannans) and the Lessee (Ramans)
f. Ramans pay Kannans Lease amount of Rs 15 lacs, which Kannans return to the Bank or HFC. The EMI gets reduced from about Rs 40,000 p.m. to Rs 25,000 p.m. – a saving of Rs 15,000 p.m. to Kannans
g. This saving to Kannans translates to about Rs 61 lacs @ 7% p.a. interest in 15 years.
h. On completion of lease period, Kannans have to return to Ramans only Rs 7.50 lakhs
i. Kannans thus earn Rs 61 lacs (Compounded), besides the Capital Appreciation of the property, which will be minimum double the investment, if not more. Also, Kannans do not have to pay for the monthly maintenance charges of the property as Ramans will pay the same.
ii. Ramans
a. Instead of Rs 50 lacs Ramans get to live in the retirement community property on lease by paying only Rs 15 lacs for 15 years
b. They save Rs 35 lacsand get all the services and care of which they were worried about.
c. This saving translates to savings of about Rs 97 lacs in 15 years (Compounded), which they can use for any care requirements.
d. On completion of the lease period, they will get Rs 5.50 lakhs from Kannans, thus saving a total of about Rs 102.50 lakhs
iii. Conditions Precedent for Kannans and Ramans:
a. This concept is applicable to only the senior citizen who is above 70 years of age (between husband and wife, one has to fulfill this requirement). Not applicable to anyone below 70 years of age
b. CovaiCare, based on the prevailing rent, calculates lease amount, annual increment of 10% rent for 15 years (Compounded) and converted to the Lease amount. If rent value is higher the Lease amount will be higher and so will the property value be.
c. Lease periodcannot be broken by Kannans (Lessor)
d. Ramans (Lessee) cannot break the lease agreement forat least 5 years.
e. After five years,if Raman or his wife dies and the other moves to live with the children, the lease may be broken and the lease amount to be refunded by Kannan will be worked by CovaiCare.
f. If Kannans do not want to pay the specified lease amount, then CovaiCare will find a new Lessee for the remainder of the Lease period and Kannans will enter into a lease with the new Lessee, with CovaiCare continuing to be the Confirming Party
g. Alternatively, Kannans can refund the specified lease amount to the surviving Ramans or in case of demise of both the husband and wife, to the nominated heir of Ramans. Kannans can sell their property through CovaiCare at the existing market rate at that time.
h. The Lease Deedwill be elaborate and CovaiCare will be the Confirming Party for both the Lessor and the Lessee.
iv. Variations in the Concept:
a. Instead of Kannans, the son or daughter or any relative or friend of Ramans can buy the property and Ramans can pay the Lessor the Lease amount specified. Thus Ramans need not feel bad and at the same time the saved amount of Ramans can be enjoyed by the heir(s)
b. If any senior citizen living in any of the CovaiCare Retirement Communities is above 70 years,he or she or they wish to sell their property for the market price but take only sale amount minus the lease amount and enter into a fifteen year lese agreement with the buyer (Lessor) with CovaiCare as the Confirming Party and continue to live in their property undisturbed, they can. On completion of lease period they will have to vacate to the dwelling of similar type as their property in the same CovaiCare Retirement Community, which will be arranged by CovaiCare.
This is a new investment option where the investor in a retirement community dwelling gets a much higher ROI and the elders get comfort and live their last years of their lives with savings for care with advancing age
For more information, please contact:
sri@covaicare.com
Vanakkam Colonel Sridharan! Your article is very useful for investors like me. It is interesting to know that the ROI of a retirement property is much higher than the one in real estate. I didn’t realise this until i read your article. In my case, my parents are senior citizens and probably i should invest in a retirement property with CovaiCare where my parents can live comfortably and peacefully. Nice concept! Thank you