Applying stokvels to own a home
FUND POOL BUYS PROPERTIES TO LEASE Not enough proof of success exists yet, but it seems like a sure way for some members to own a home.
Stokvels have come a long way from their humble beginnings to today being widely used for a variety of financial solutions; most notably property. It is no secret that entering the property market is a costly exercise that usually requires a king’s ransom to meaningfully embark on the venture. And in some cases an individual neither possess sufficient funds nor is credit worthy to borrow large amounts from the bank.
But it just so happens that creativity knows no bounds and to that effect an ingenious concept to convert regular stokvels to property stokvels was born.
In essence, property stokvels operate much the same as traditional stokvels but with one key differentiator in that property stokvels are more long term as opposed to the usual short-term horizon of regular stokvels. In most cases, traditional stokvels have a 12-month shelve life within which all participants partake of the fruits of the stokvel.
But in the case of a property stokvel ,the life cycle is much longer than 12 months. It could possibly range from ten to 20 years due to the nature and sizeable investment required, which in turn requires a longer investment horizon. And therein lays the greatest risk to property stokvels.
Their long investment period poses a number of challenges especially due to their lack of regulation. Additionally, the success or lack thereof in property stokvels hasn’t been tested.
Property stokvels only begun five or so years ago, of which very few have proof of viability. Obviously required are a compliance, regulatory and legal scrutiny to ascertain certain aspects of property stokvels, including how exactly they function. These we will discuss next week.
Nonetheless, property stokvels are providing certain income groups the opportunity to enter the property market with two main objectives. Firstly, property stokvels are being used as long-term investment vehicles. Essentially, the pooled funds are used to invest into properties which are then leased out, enabling the stokvel to collect monthly rentals which are used in part to pay off the bonds together with monthly member contributions. The goal is clearly long-term financial stability, which includes owning various property assets to lease or sell off after the investment period.
The second and more widely use of property stokvels is home ownership for participating members. Lack of credit worthiness or insufficient deposit on bank mortgages deter many to own a home.
Property stokvels have conceptualised a method that enables members to own homes in the long run. It is a fantastic initiative for people who in the past saw no means of owning a home. Munya Duvera is CEO at Duvera Elgroup