How Can Real Estate Provide for Old Age?

Despite owning real estate, many people worry about their income in retirement. In recent years, numerous financing models, including life annuity, have come onto the market and promise to solve the problem. These new models allow owners to liquidate their home without losing the right to live there. In the 19th episode of the #ZEWPodcast, ZEW economist Dr. Karolin Kirschenmann compares various equity release products and explains who might be interested in them. She also illustrates how policymakers can provide regulation and how the market works in other countries.

“In the past, many households in Germany have invested their savings into property in order to live rent-free in old age,” Kirschenmann says in the podcast. Now the idea has come up that one might “extract the money from the property itself.”

Depending on individual needs, different products are available. Kirschenmann advises that all options need to be considered carefully. The life annuity model, for example, allows the owner to sell the property to a provider and to be guaranteed a temporary or life annuity, depending on the agreement. The provider will be responsible for maintaining the building. In case of a sale with life tenancy, however, the seller is still responsible for maintenance after the sale and can rent out the property even after moving out. Other models offer a partial sale of the real estate and the new co-owner is paid a monthly usage fee.

Kirschenmann hopes politicians will introduce new regulations in the future. “I strongly advocate for the introduction of minimum standards to provide support and guidance for consumers,” says the economist. Stricter regulations already exist in the UK, for example.