Banks confirm nearly half of home loan applications come from more than one person
With interest rates remaining at their lowest levels in decades, and many aspiring homeowners still short of the finances to buy, South Africans are clubbing together to get on to the property ladder.
These enterprises range from joint purchases between romantic partners, families and friends, to members of stokvels and even larger crowdfunding platforms. Banks say a large proportion of their home loan applications are from joint buyers, although they cannot differentiate between buyers who are romantically involved and those who are investment partners.
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Vanashree Naidoo, product head at FNB Private Bank Lending, says 40% to 45% of the bank’s home loan applications are from joint buyers, mostly involving two people. “Purchase of freestanding residential properties seems to dominate in this space, followed by sectional title units with average prices of about R1.2 million. We have, however, noticed an increasing trend in purchases of homes in new developments by joint buyers, which indicates a move towards lifestyle estate living.”
She says people generally apply for joint home loans to improve affordability, especially when all the parties have a steady income. In the first six months of this year, joint bonds made up just under 40% of Absa’s registration volumes, says Geoffrey Lee, managing executive at Absa Home Loans.
“Clients were mainly buying dwellings, as opposed to vacant land or smallholdings. Sectional title properties made up just below 30% of our registered volumes.” He says the most popular loan sizes are still under R1m, with those from R1m to R2m “gaining good momentum”.
Joint property purchases are growing in popularity to such an extent that FNB has launched a lending solution that allows up to eight people to buy property for residential purposes as a collective.
Friends and family
Lee says joint applicants can be friends, family or acquaintances who come together to increase affordability, to get finance for a property purchase.
“Given that they are both jointly and severally liable for the mortgage provided, they need to consider obtaining legal advice in terms of tax liability and what would happen if one of the partners got into financial distress and was not able to make the payments. They also need to consider other events which could derail the process, such as divorce or death.”
As joint applicants tend to focus on the benefits of pooling assets, they do not always give sufficient consideration to the problems if things don’t go as planned. Naidoo advises joint buyers to ensure all parties see money the same way and have the same goals.
“Buying a property together is a serious commitment with long-term ramifications which should not be taken lightly. “Also important to note if you are applying for a joint home loan is that all applicants are jointly and severally liable for the bond as both the bond and the property are registered in the name of all the applicants,” she says.
Silindile Leseyane, property investor and co-founder of Sakhisizwe Property Stokvel, has seen a rise in the number of stokvels buying property together. She is also seeing more people from different race groups forming stokvels to buy property.
“We all know property can be expensive, and the barriers to entry can be high for individuals, but through the collective power of stokvels, it is becoming easier for people to club together to buy.”
Sakhisizwe Property Stokvel, through its membership of the SA Property Investors Network, comes across many investors looking to use crowdfunding or stokvels to fund their goals. She says stokvels differ but each sets out clear objectives in terms of what they are aiming to achieve.
Some buy land and build, some buy to let and some buy homes for personal use. Leseyane has recently noticed a rising trend of stokvels buying investment properties: “They leverage their collective buying power to access bigger investment opportunities or collaborate with property investors or developers as funding or equity partners.”
But while stokvels circulate an estimated R50 billion, according to the National Stokvel Association of SA, she says most of this income is focused on short-term spending and not wealth creation.
“If even a fraction of these stokvel funds were used to buy or invest in property, it could be a great way to close the wealth gap as property ownership is one of the cornerstones of wealth creation.”
The main difference between a stokvel and crowdfunding to buy property is that stokvels are more informal and rely on self-regulation and members’ individual responsibilities. Crowdfunding has a legal framework. Online crowdfunding initiatives can also reach more people.
Real estate crowdfunding is changing the game for young investors globally, says Zak Omarjee, founder and chief executive of Crowdprop. “Millennials and Gen Z are known for their different approach to money in comparison with other generations. These investors demand more autonomy over their investments and are surrounded by tools and technologies.
“This not only allows more control over investments but also more diversity in terms of how they are spreading their risk among investments.”
A new global trend in shared property ownership is tokenisation where investors can digitally purchase shares in a real estate asset, much like cryptocurrency. These shares become tradable, like stocks. Each fraction of the asset can be bought by individuals and the details are stored on a distributed ledger.
Zane de Decker, managing director of Flyt Property Investment, which launched Africa’s first property-backed security token last year, says the move to digital assets brings an exciting new option for investors.
The Flyt token, which resides on the Ethereum blockchain, allows investors to subscribe to, redeem and transfer shares in the Flyt Hospitality Fund, a South African Section 12J fund investing in hospitality property and aparthotels – specifically sectional title, serviced apartments and student accommodation.