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Through Decree 1398, issued this October 26, the Government, through the Ministry of Finance, gave free rein to the operation of the real estate life annuity, a scheme so that people can have additional income – until their death – based on the equity value of their properties.
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According to the Ministry of Housing and the Regulation Unit of the ministry, this figure, which will operate under the scheme of reverse mortgage, is aimed at increasing the income of the elderly, especially those who do not have a pension, but do have a property, so that they can monetize the value of their assets.
According to the entities, these are the key points of the scheme, which can only be offered by insurers and which must be regulated in detail by the Financial Superintendency, so that said entities offer the mechanism to the public.
What is the real estate annuity?
It is an insurance that life insurance companies will be able to offer. The operation consists of the policyholder paying the premium price by transferring ownership of a property and, in exchange, the insurer undertakes to deliver a periodic income in favor of the policyholder or its beneficiaries.
The policyholder or the beneficiaries who are thus agreed in the insurance contract have the right to preserve the use and enjoyment of the real estate until the death of the last of them.
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Who can use it?
This figure is completely optional, and can be accessed by all households that so wish voluntarily, for which the insurance companies will be in charge of special information, documentation and advisory duties.
The decree does not set a minimum age limit to access the mortgage annuity. However, it is possible that in the development of the operation there are market variables that determine which population groups it is more favorable or convenient to subscribe this type of operation.
The scheme can be used by all Colombian owners, without age limits and without distinction of strata or income.
Download in the following link the decree of the real estate life annuity:
How will it work?
The household interested in taking out the insurance must prove the ownership of a real estate, and will transfer said property as payment of the premium price at the time of signing the real estate life annuity contract.
Although the household transfers ownership, it will retain the use and enjoyment of the home until the death of the policyholder or the last of the beneficiaries.
The amount of the periodic rent will be determined by each insurance company. Some of the main variables that will affect the amount of the periodic rent are the appraisal of the real estate and the age of the beneficiaries.
When will it start operating?
Life insurance companies may offer real estate life annuities once the Financial Superintendency issues the respective regulations.
Payment of property tax, other taxes and extraordinary administration fees will be in charge of the insurer
Can the policyholder or policyholders retract?
Yes. The withdrawal consists of the possibility for the policyholder to request the cancellation or reversal of the real estate life annuity contract, for which they must pay the insurer the value of both the income received to date and the expenses that the insurance company in relation to the maintenance of the property, indexed to the present value of the moment in which the withdrawal is wanted.
What will be the modalities of the real estate life annuity?
According to the Ministry of Housing, these will be the two operating schemes.
- Immediate real estate life income. The insurance company undertakes to deliver the payment of a monthly rent until the death of the policyholder or that of his beneficiaries.
- Certain temporary income with deferred life annuity. It is divided into two moments. The first defines an initial amount that the insurer will pay the beneficiaries in installments for a specified period of the contract. Once this period has elapsed and the agreed sum has been paid, the payment of a monthly rent begins until the death of the beneficiaries. If they die before the end of the first moment, the insurer must pay the balance of the sum agreed in the contract to the heirs.
Who will pay the property tax and other contributions?
It is up to the insurance company with which the real estate life annuity contract is signed to assume these items.
- Notary and registration fees associated with the transfer of bare ownership.
- The payment of property taxes on the real estate.
- Extraordinary administration fees.
For its part, the household is responsible for the payment of public services and ordinary administration fees.
Can you make a life annuity on an asset that is not in horizontal property?
Yes. Only the property title of a property is required regardless of its destination or its condition in horizontal property.
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