Generational wealth is a concept that has been reserved for a select few in South Africa. Notable families such as the Motsepe’s, Rupert’s and Oppenheimer’s have amassed generational wealth through investments in businesses across all different spheres.

For the majority of poor to middle class citizens living in South Africa, generational wealth is but a fairly-tale idea that individuals live in hope to one day see. With consistent poor economic results and a failing government, citizens are left no choice to find alternative ways of creating wealth.

After South Africa won the world cup the popular term “Stronger Together” was coined to illustrate the success that can be achieved when individuals work together for one common purpose.

A quintessential example of this is South Africa’s Stokvel market. According to the National Stokvel Association of South Africa, there are currently 800 000 Stokvel groups, with over 11 500 000 members across all provinces.

Historically, these Stokvel groups were created as collective schemes where individuals ordinarily contribute an equal amount of money for a common purpose. The objectives would be to save for bulk purchasing of groceries, school fees and a rotational sharing of the funds. Whilst this worked back then in the modern day era Stokvel’s have become a lot more sophisticated.

Property Stokvel’s where individuals pool funds to purchase property is one such example of the intricacies of Stokvel’s in the 21st century. To explain, individuals pool funds to purchase land, build property to either resell at a later stage or generate profits through rental income.

The nugget of this investment mechanism is that it helps the members / contributors spread their risk with the vast number of members and allows ordinary middle class individuals to “diversify their portfolios”.

Furthermore, it also allows individuals who do not have the funds to invest in real estate to get a piece of the pie.

Xolile Msthazo of Sowetan Live in an article titled “Best chance to own, pay for property” highlighted the success story of Durban based property developer and construction section of the oGatsheni group. To add on, the stokvel offers members an opportunity to own a share in a bigger property portfolio offering an alternative option to a typical home lease on a 20 year bond. To add on, the group strives to either pay for property in cash or reduce the 20 year payment period significantly. Members are divided in groups of 8 and can expect to own property after 10 years of making consistent contributions.

A much simpler avenue to exploit is an amalgamated group of friends, family members or individuals who share a common interest to pool funds together to invest in property. Once the Stokvel has been opened the group can seek mentoring from organisations that specialize in real estate and begin their investment journey. Research will always be your best friend.

However, investing in property is not a silver bullet to financial freedom as with any other investment it carries its fair share of intricacies. Property experts have warned that proponents of this type of investment need to perform a thorough SWOT analysis before committing to any payments.

Importantly, a thorough SWOT analysis does not replace a poorly drafted constitution. Generally, a Stokvel’s constitution needs to set out its objectives, rules and the amount that will be contributed. Points such as the transfer of funds upon the death of a member and the protocols to be followed given the loss of employment or inability of a member to make contributions need to be considered with utmost care.

Ezra Rasethe founder of Pope of Real Estate Investment listed 5 critical things that could derail formulation of a Property.

  • Incorrect members  – Members who do not have bank financing and lack in commitment
  • Uncommitted people – members who do not attend meetings, make excuses and do not pull their weight.
  • Structure – The incorrect structure might delay the Stokvel getting a bond.
  • Investment strategy – Where you buy properties? Price? Residential? Commercial?
  • Mentoring – Not having a mentor may lead to the Stokvel not maximizing on its returns and ultimately failing.

One expert states that members of stokvels need to know the reason to purchase land, the price of land, price of materials to build, the location and that given the market conditions at the time that it can take time to sell property. To add on, if property has been bought with the sole intention to derive profits from rental income, it is paramount to note that tenants will not always pay on time which could make it difficult for the stokvel to keep up with their bond payments. To curb this, reserve funds need to be reserved by the stokvel for this purpose.

Chairman of the National Stokvel Association of South Africa Andrew Lukhele has warned that the hype around property stokvels come with an added risk. He warns that members need to be vigilant around fraudsters and alike. Due to the soft regulation of Stokvels they open an opportunity for scammers to take advantage of innocent individuals.

However, what is an investment without any risk attached to it.

Generational wealth will only be built by individuals who are intentional with their actions and seek to want to gain more from life. Regardless of what background an individual comes from together great things can be achieved.

Investor Ntwana!


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