Stokvels are enabling many people to get on to the property ladder who otherwise would not have had access to the necessary equity to buy.
Many South Africans continue to use their difficult life experiences to get ahead in the property market, specifically by investing in this bricks and mortar asset through stokvels.
This traditional savings scheme has evolved over the decades and is propelling many people into property ownership – both for private use and commercial investment.
One such property investor is Silindile Leseyane, an entrepreneur and winner of the 2019 SA Investor of the Year award (in the Innovative Category), who states that the storms of life are what makes one decide to either “work hard and stick the course or lose hope and throw in the towel”.
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“Rough seas teach us that we can endure, develop grit, and achieve when we decide to put our heads down and push through the rough terrain.
“Everything worth having in life does not come easy and I learned this the hard way when I was growing up in Piet Retief, living in a two-bedroom house with my family.”
The house had extra rooms at the back of the property that her mother would sub-let to earn additional income. Through this, Leseyane saw the power of investing in property.
“It was a lesson that would lead me into property investment later in life with a vision to create wealth.”
Her first income-generating property project was realised in 2008 when she worried about falling behind on her bond repayments for a two-bedroom property she has purchased the year before.
“Remembering and applying my childhood lesson of sub-letting property, I decided to take a chance and sub-let the spare room in the house, and I was, fortunately, able to make ends meet. My first property purchase as an investor was in 2010 when I bought a one-bedroom flat for rental income.”
As stokvels involve a pooling of financial resources to aid those in a community, traditionally to buy groceries or to pay school fees, Leseyane says “the penny dropped”.
“This system, and the need for survival, birthed an idea to create an informal ‘savings club’ within my circle of friends for property investment opportunities. I thought l would use the crowdfunding principle and so started a stokvel-type ‘savings club’ for my friends who were interested in property investment. I knew this would create golden opportunities for us.
“We lay down some ground rules, one of the most important being that to be a part of this ‘savings club’, a member had to invest into their own education about property.”
Today, the stokvel membership has grown from just 50 members to 400, and from a pooled value of R300 000 to R10 million.
Generally, most stokvel members investing in property use the funds to buy, build, or extend their own homes, but increasingly they are using surplus money to buy affordable property to let for rental income. In some parts of the country, groups that have helped each other extend and build their homes are now setting up new properties rented by migrant workers and students, says Neo Mohlatlole, co-founder of StokvelEx.
Many current stokvels have purchased properties in CBDs and townships, as well as agricultural smallholdings and small-scale student accommodation.
“The areas they buy into have high rental demands and the properties are fairly-priced which allows them to purchase more from their savings.”
Andrew Lukhele, chairperson of the National Stokvel Association of South Africa (Nasasa) says that, in recent times, stokvel members have been encouraged to either develop their own group property portfolios and let the properties, or invest in already established property businesses that let to locals. Another scheme sees stokvel members owning shares in property investment companies that earn rental income each month, accruing in value each year as the properties appreciate.
For these reasons property stokvels are becoming increasingly popular as more people realise the benefits of pooling capital to purchase assets, says Vuyiswa Mutshekwane, chief executive of the South African Institute of Black Property Practitioners (SAIBPP). While there is no data to portray this growth she says there is “significantly more interest than even five years ago”.
“It is certainly an exciting avenue to homeownership for those who have previously not been able to access property, and also for those who do not have access to equity to participate in commercial ownership and development. Internationally, property crowdfunding is an area that has also started to gain traction.”
Petrus Khumalo of Schoeman Law Inc says the most common use of property stokvels is buying and leasing.
Another is home purchasing. Property stokvel investors also buy vacant plots of land, pay them off and then use the stokvel as a means to fund building on the plot, he says.
“Another use which is popular among members who do not want to deal with the management of the property is purchasing shares in a property investment portfolio. This is where the property stokvel creates annuity income for members.”
Khumalo says property stokvels are not part of the formal business sector and currently not regulated in South Africa. This means it is “essential” that a prospective member does the necessary due diligence before joining such a stokvel.
“It is also recommended that members formulate their own constitutions that will deal with the rules, regulations, membership information, duties and responsibilities of each member, goals of the property stokvel, and what should happen when a member leaves or is unable to keep up with their financial obligations.”