As people live ever longer, the conundrum of working out how to make ends meet in retirement becomes ever more complex. Especially for those that live in valuable property and who have no children to pass their assets on to.
In France, they have the option of ‘Viager’ agreements – a real estate agreement where the buyer makes monthly payments to the seller for the rest of the seller’s life, and the buyer takes possession of the property only after the seller’s death.
Viager sales are a tiny fraction of real estate deals in France – less than 1%. But the popularity of this ancient and arcane way of doing business – part of French law since 876 AD – is on the rise again, as property prices in areas such as Paris remain high.
However, these schemes rely on the property owner dying for the investor to take possession.
A few years ago, a man was charged with attempting to poison his 85-year-old viager tenant, by putting medication in her mineral water. In fact, it is a sign of the inherent tensions in the system that any death involving a viager is automatically investigated by the police, to clear up any suspicions.
It’s also forbidden to question the seller about their health, so it throws up incentives to indulge in a bit of theatrical behaviour.
“Some of the sellers ham it up a bit,” one viager estate agent said. “They sit on the sofa, with a blanket over their knees, and don’t move. But actually they’re in good health.”
Buyers often look for signs of illness when they visit the property – such as medicine bottles in the bathroom.
But the biggest risk is longevity.
In 1965, 90-year-old Frenchwoman Jeanne Calment entered a Viager agreement with a 47-year old lawyer named André-François Raffray, who agreed to pay her 2,500 Francs per month (€380 in modern terms) until she died, in exchange for future ownership of her apartment.
As she was already well past the average life expectancy it seemed like a good deal.
However, Calment lived another 32 years – becoming the oldest verified human in history. She eventually died in 1997 at the age of 122, having outlived the buyer by two years!
Raffray’s widow was forced to continue making payments for almost three more years until Calment’s death. In the end, the family had paid more than twice the apartment’s value without ever living in it.
A legendary reminder that you can never truly bet against life! It is proof that there is always risk in everything you do – if you don’t see the risk then you probably don’t understand what you are getting into.
If you would like to speak with us to improve your income in retirement – or just want to understand the risks involved with your investments, then please get in touch.
