There’s no doubt that buying a home is expensive. Even if your bank grants you a 100% mortgage loan, you still have to find the money for the conveyancing attorneys' fees as well as bond registration and transfer costs.
Once you have taken transfer of your new home, you have to budget for the cost of moving as well as ongoing costs like rates and taxes, home insurance, water and electricity and a host of unexpected expenses that come with home ownership.
Before you give up on your dream of owning a home, you might want to consider funding it by means of a property stokvel.
What are property stokvels?
Stokvels, or ROSCAs (Rotating savings and credit associations) started out as collective saving schemes. They were popular among groups of like-minded people who shared similar goals, looking to meet short-term needs. These include funeral schemes, buying groceries, or school supplies at year-end.
However, stokvels are fast becoming a way to build wealth and invest in property. According to recent research, over 11 million South Africans are members of one or more stokvel. South Africa, currently, has over 820 000 stokvels holding annual savings of close to R50 billion, and large corporates are starting to realise the importance of stokvels in business.
For example, banks like FNB and Absa have launched a collective buying home loan scheme. This scheme allows up to 12 people to buy property together. Buyers can team up with eight people, including spouses when applying through digital channels - or 12 if they apply in a branch through a sales consultant. The group can collectively decide how much each person will contribute towards the monthly instalment, and the monthly debit order can be divided to suit the group's needs.
Although the product primarily aims to solve the challenge of financing affordable housing, FNB says it is also designed to serve more affluent customers.
A property stokvel can buy one or more properties to maintain, manage and rent out, with each member taking a share of the rental income. In addition to being a way of collectively owning properties, a property stokvel can be used as a vehicle for investing in property for each member of the group on a rotational basis.
Due diligence
As with any type of stokvel – or other investment vehicles – you need to know precisely what you are letting yourself in for before signing up as a member of a property stokvel. This means you must thoroughly research the other members and examine the constitution and existing books of account. Although you are unable request a credit report for another person from a credit bureau, you can ask to see a report that they themselves have requested.
Stokvels are usually informal, and no legislative or regulatory framework governs them. However, the National Association of Stokvels of South Africa offers some guidelines for checking whether or not the property stokvel you are considering is a legitimate organisation.
- It should have a constitution outlining in clear language the purpose and rules of the stokvel, where member funds are deposited, and how they will be redistributed.
- The leadership structure should specify who the chairperson, treasurer and other executives are.
- Contributions should be placed into a single bank account. Note that funds being channelled to individual or separate accounts are a red flag.
- Ask the person running the stokvel to confirm where your money will be invested. Also, find out how the stokvel can prove to you that the money has been invested.
- Ask how you will be able to keep track of your contributions.
- Make sure that you will get monthly statements and that the contribution structure is transparent so that you will be able to see exactly where your money is going.
- Ask what happens if a member fails to pay.
- There should be regular meetings where members can ask questions and receive feedback.
- Finally, find out upfront what recourse you have if the scheme collapses. How will you get your money back?
Property stokvels are an effective vehicle for low to middle-income communities to invest and build wealth through harnessing the power of the collective. A property stokvel can be an excellent way to fund a property investment - provided you do your homework and take all the necessary precautions.
Writer : Sarah-Jane Meyer
