Courtesy:
Sunday Tribune (Final), Property 360 – 4 Oct 2020 – BY BONNY FOURIE
Many investment club members pool money to build or extend their own homes but others buy to generate rental income
Property stokvels continue to gain momentum in South Africa with members now using this option to branch out as property investors.
Most stokvel members investing in property still use the funds to buy, build or extend their own homes but increasingly they are using surplus money to buy affordable property to invest 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 used for migrant workers and students, says Neo Mohlatlole, co-founder of the country’s first Stokvel exhibition, StokvelEx.
Going forward, he says there will definitely be an increase in stokvel group purchases in the entry-level property market and in townships.
“Most stokvels struggle to get good rates when they apply for bond applications and, through their collective contributions, they are able to get the properties. Some are national groups that have recruited members from all the provinces and are using the bought properties as holiday homes, yielding a higher return than monthly rents.”
Many stokvels have purchased properties in central business districts and townships. Also popular are 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 .”
Most corporate stokvels have been able to grow their investment property portfolios due to the successes of their initial projects and the concept is proving so beneficial that the notion is slowly starting to attract interest outside black African culture.
Mohlatlole says similar models are being seen in the Muslim community where members pool money and invest in business properties and factories. However, as most people in other demographic groups have historically had access to credit and earned slightly higher salaries, the stokvel trend “will not be as big” as among African groups.
Andrew Lukhele, chairman of the National Stokvel Association of South Africa is aware of one “white” stokvel but says the more “privileged” race groups generally do not need the survival strategies that are popular in the townships and rural areas.
“South Africa is still plagued by massive inequality and one of the best ways to level the economic playing field is to encourage access to land ownership… “And this is where collective property buying – the only alternative for many black South Africans – comes in.”
He says in recent times, stokvel members have been encouraged either to develop their own group property portfolios and rent the properties out or invest in already established property businesses that let property to locals.
Another scheme sees stokvel members owning shares in property investment companies which earn rental income each month, accruing in value each year as the properties appreciate.
Mohlatlole says property stokvels get to see the success of other stokvels and are inspired to leave legacies for their children. These groups have evolved from being just about groceries and school fees to building each other comfortable houses and now investing in properties that they normally would not qualify for.
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.
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 for those who have previously not been able to access property ownership, to become homeowners 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,” Mutshekwane says stokvels that invest in property – otherwise known as investment clubs – usually decide to do so with properties that fit their risk and return profiles – or even look at making social investments like collectively contributing to the building of a school.
“Stokvelling has always been more prevalent in the African community and in other communities where access to traditional forms of credit and social insurance were limited. The principle of pooling capital to invest or earn annuity income however is not new or unique to us and is done in some shape or form and with varying levels of sophistication in all financial markets.
“The untapped opportunity in South Africa is in converting the vast stores of pooled capital in stokvels into productive capital that can be used for social investment, to generate returns and drive development,” Mutshekwane says.
