Could property finance be turned on its head in a dramatic, unexpected way?
Evidence from the 2019 Old Mutual Savings and Investment Monitor shows it is possible a new, parallel property finance market could be borne out of the rapid rise of property stokvels. This potential for disruption is enormous considering that the traditional stokvel market has grown to an estimated annual value of more than R40billion.
What started as an alternative savings mechanism outside of formal financial systems is today a significant force. And there’s no reason to believe that property finance is immune to millions of individuals pooling their resources for the benefit of stokvel members.
The annual Old Mutual Savings and Investment Monitor tracks shifts in the financial attitudes and behaviour of South Africa’s working metropolitan population.
The research into property stokvels was included for the first time in this year’s survey, and polled 15 founders and 105 members of these schemes. Their responses reflect an increasing sense of self-empowerment, as well as dissatisfaction with traditional lenders.
Stokvels are not only familiar structures in black communities, but also help to retain ownership and money in these communities. Applying this outlook to property ownership creates an avenue to building generational wealth and the dignity associated with owning a home.
The true power of these schemes is reflected in the numbers of both membership and their combined contributions. The largest group that was surveyed, more than 550 members, accumulates R24million a year from monthly contributions that range from R3500 to R15000.
Although that group may be an outlier in terms of membership and contributions, it’s not uncommon for members to contribute about R2500 a month. A group with 100 members can easily reach an annual investment of R3m, and a group of 30 can accumulate R900000 a year from relatively modest monthly contributions.
The more ambitious property stokvels are building investment property portfolios that are used to create generational wealth, while many assist members to buy or build a family home. Others are focused on helping members buy materials needed to complete a project.
Of the property stokvels that focus on homeownership and building homes for its members, the study found that members are predominantly female (89percent), with 52percent aged 35 to 49. The younger members, below 35, make up 16percent of membership and those over 50 constitute 31percent.
One striking characteristic of these schemes is their unflinching focus on property finance, refraining from personal loans for other purposes.
They also have sophisticated governance in the form of scheme constitutions, using application forms as the contract between members and the scheme.
It’s clear from the survey that members see greater value and experience a greater sense of community from these schemes. The ability for lower-income earners to realise a dream of owning their own home is also powerful.
Lynette Nicholson is head of research at Old Mutual.