Real estate: how does the life of OTC work?

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The OTC annuity market is a concept that is little known to the general public in the real estate sector. Yet this is a formula with multiple benefits for both the seller and the buyer. For sellers, the sale in life is a good solution to ensure additional income. For buyers, it allows to acquire a property in conditions of very favorable financing.

The life of OTC

The OTC annuity market has twice as many offers as there are demands on the current real estate market. But it should increase significantly in the years that follow. Indeed, although the number of transactions recorded remains a little limited, about 7,000 per year for only 1% of the total volume, more and more buyers are now choosing the sale in life.

95% of the current transactions concern a life annuity sale contract. In this type of contract, the owner sells his house while continuing to occupy a part or an apartment, without being the owner. From a legal point of view, the seller – also called the “annuitant”, keeps the enjoyment of his property and continues to live in it. The buyer – the “débirentier” meanwhile acquires the bare ownership. Under the terms of such a contract, the buyer pays a sum that he has previously defined with the seller – the bouquet, supplemented by a life annuity that he will also give every month to the owner until his death. At this point only, the buyer will have obtained the full enjoyment of the property.

Seniors and young retirees are the most interested in life annuities. The majority of sellers in life are more than 70 years old. This is a formula that allows them to earn additional income through the monthly rent, while continuing to live in their home. The seller can, depending on the property, occupy a separate room or an independent studio in the housing.

The conditions of the sale in life

The concept is simple, but there are certain conditions to respect. Several criteria are taken into account to define the amount of the bouquet and the life annuity: the market value of the good on its market, the age of the seller and its life expectancy. Also, it is quite possible to pay a small bouquet, but it involves the payment of a life annuity more important. The opposite is also possible. In general, the amount of the bouquet represents between 30% and 40% of the market value of the property. Nevertheless, the purchaser can still negotiate a higher bouquet, to obtain a lower life annuity.

According to the law of March 29, 1949, the transaction of a sale in life must retain a character “random” to be concluded, in this case the life expectancy of the seller. This means that if the buyer is aware of the seller’s (very weakened) health condition at the time of the transaction, the sale may be canceled. Similarly, if the seller dies within 20 days of the date of signing the life annuity contract, the sale is also void.

As for the contractual aspect of such a transaction, it is necessary to formalize a deed of sale in due form. It must include some essential elements such as the civil status of the seller, the amount of the annuity, the market value of the property, the terms of payment, the amount of the bouquet, as well as the different payment conditions, not forgetting the indications. the time when the buyer can fully enjoy the property.

Our advice

In Mauritius, the sale in life may interest foreign pensioners who invest in the purchase of property in Non-Citizen Property, in a building of at least R + 2. A purchase that allows them to obtain the Mauritian residence permit if they wish to occupy their property as their principal residence. But they can also opt for a rental investment or opt for a sale in life. In this case, it is strongly advised to clearly mention the distribution of current expenses of the property. Two important clauses must even be included in the life annuity contract: the annuity valuation index, such as rent and a resolutive clause. The latter concerns the possibility of cancellation of the sale in case of non-payment of two consecutive annuities.

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