Real estate: buying life annuity, a good plan for first-time buyers?

Those under 34 seem to be considering the question of life annuity. Among the 41% of French people saying they are interested in purchasing a life annuity, half of them are between 25 and 34 years old, according to a study published this Thursday, May 16 by Optimhome/Harris Interactive. A particular type of purchase that first-time buyers are not ruling out in their plans while the market recovery is slow to come.

In its latest economic report published this Tuesday, May 21, the FNAIM underlines “that no market indicator has yet turned green”. The number of sales is still at half mast (-23% in one year in February), as is the production of credits granted by banks (-38% in one year in April). A crisis that drags on with first-time buyers first in line. The latter have seen their borrowing capacity plummet for more than two years.

In this context, no opportunity is left aside, starting with the life annuity purchase. And according to the company Renée Costes, specialized in life annuity and market leader, this type of sales has tended to increase in recent years. With 5,500 operations in 2022, the market recorded growth of 6%, according to the last barometer Renee Costes. “The year 2023 should have nearly 6,000 sales, an increase of two to three points,” confides Stanley Nahon, general manager Renée Costes. For its part, the Optimhome agent network has observed a 30% increase in its life annuity sales compared to last year.

6.6% profitability

Even if those under 34 seem more interested in purchasing a life annuity, the reality is quite different. The average age of buyers is in fact 46 years old. Jean-Marc, 55, embarked on such a project last year with his wife in order to acquire an apartment of 35 m2 in the 18th arrondissement of Paris. “Having not invested in a retirement savings plan and not having enough money to buy a second home we opted for this solution,” says the teacher, while emphasizing that the inflation of recent years has also encouraged him to get started. “It’s a safe investment,” he describes. But not without risk. Since this method of purchase is based on the longevity of the occupant of the apartment, aged 77 at the time of signing the contract.

Thus, after having paid 40,000 euros for the bouquet – that is to say a sum paid in cash directly to the seller – the couple pays a monthly annuity of 750 euros to the seller, until the death of the seller. This is the date during which Jean-Marc and his wife will be able to recover the accommodation. “If she were to die in 13 years, or at age 90, the purchase price of the apartment would cost us approximately 163,000 euros,” he explains. A property however estimated at 280,000 euros in 2023.

Although this type of investment is based on the principle of contingency, the life annuity purchase is generally profitable at an average of 6.6%, according to Renée Costes.

A significant contribution is necessary

But is life annuity purchase suitable for first-time buyers? First tense point: generally, banks refuse to grant a real estate loan to this type of project, due to lack of sufficient guarantee in the event of payment default by the buyer. It is therefore essential to have a significant contribution to finance the bouquet. The price of the latter often represents 20 to 40% of the value of the accommodation.

Furthermore, the buyer must have substantial financial capacity to pay the pensions to the elderly person. These annuities can be monthly, quarterly or annual. Enough to slow down younger people from getting started, due to lack of sufficient contribution and/or income.

Another problem: “First-time buyers are looking to buy a property in which to live. However, the so-called “occupied” life annuity does not meet these expectations. The free life annuity can, however, be interesting for them,” reports Stanley Nahon. Unlike occupied life annuity, free life annuity allows the buyer to occupy the accommodation once the contract has been signed.

The interest for the seller? The latter will receive capital immediately and will obtain additional income guaranteed for life via annuities paid by the buyer, while benefiting from tax advantages. But here too, you still need to have sufficient financial capacity to buy a free life annuity. Note that free life annuities are much rarer on the market. They represent only 7 to 8% of life annuity transactions.

Although life annuity purchase seems to be a limited solution for first-time buyers, players in the sector are calm about the market outlook. “I am convinced that this type of transaction will continue to progress in the coming years,” assures Olivier Colcombet, president of the DigitRE group (Optimhome, Cafpi, etc.). For her part, Renée Costes sees the market doubling in the next ten years.

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