How does a property stokvel work?

A new type of stokvel

Traditionally, a stokvel is a pooled savings scheme, whereby members opt in to join a savings club or society, and each contribute a set amount of money every month. Then, based on a predetermined rotation, each member would receive a lump sum payout at a specific time of the year. Stokvels have, historically, operated mostly outside the realm of traditional banking systems, but that’s changed over time too. Historically, stokvels can be traced back to the early 19th Century, when they were focused on rotating cattle auctions. Nowadays, however, stokvels have become far more formal undertakings. In particular, the idea of a property stokvel is going mainstream.

A property stokvel

A property stokvel takes that savings and investment approach, and applies it to the property world. Making property ownership and investment a more accessible option for many people, property stokvels are sprouting up across the country. Like-minded and eager property investors get together to pool their financial resources, investing in a particular property together, or purchasing land to develop for commercial, industrial, or residential, purposes.

Why would you join a stokvel?

The motivation behind setting up a stokvel has always remained the same, no matter the outcome: stokvels enable and embed the habit of saving and investment into people’s lives and routines. By joining and participating in a stokvel setup, it becomes obligatory to save, and make your monthly contribution, or else you’re excluded from the club. Enabling greater economic inclusion, by enabling the ownership of property through a property stokvel, is the ultimate aim of such a club. By pooling the financial resources of its members, a stokvel can attract higher interest rates on savings, and enable the purchase of larger properties. For example, a deposit of R100,000 on a property would get you a far smaller property, than a deposit of R500,000. And that’s why property stokvels can be hugely beneficial for a first-time property investor, or low to middle-income earners.

Read more: The affordable property market is outperforming the rest

How does a property stokvel work?

A property stokvel can be used to:

• Buy a property to maintain, manage, and rent out, with the stokvel participants each taking a share of the rental income;
• Buy a piece of land to develop and build on;
• Purchase shares in a property investment portfolio, to create annuity income for members;
• Put down a deposit on a particular property or,
• Secure homes for every member of the stokvel in a cascading fashion. Some property stokvels are used to purchase homes or investment properties for members, with the order of each purchase linked to when a member joins.

The rules of a stokvel

Of course, just as every club and society has rules, so too must a stokvel. The formalisation of a stokvel, property or otherwise, must be underpinned by a robust constitution and contractual signings made by each contributing member. Notably, financial institutions have created a variety of banking options available for stokvels, and the requirements for opening such an account include creating a constitution and similar documentation. Assessing a stokvel for its suitability and legitimacy should be easy to do. If it’s made difficult in any way, be warned that you may potentially be dealing with a scam (more on that just now!) First off, every stokvel needs a constitution. A property stokvel constitution should include information on:

• The rules and regulations of the stokvel.
• Stokvel membership information, including how many people can join, and what their financial contributions need to be.
• Clear information relating to what happens when a member leaves the stokvel, loses their job, or is unable to keep to their financial commitments.
• Each members’ duties and responsibilities.
• The type of financial solutions and options that will be used to secure the stokvel’s finances and ensure the club reaches its goals.
• The definitive goals of the stokvel.

Spot the stokvel scam

It doesn’t matter if a property stokvel is run by your best friend – doing your due diligence is a must, whenever it comes to your money. If you’re invited to join a property stokvel, we recommend doing the following, long before you make any financial commitments:

• Ensuring it has a clear and robust constitution.
• Finding out about the leadership and membership structure.
• Ensuring you know everything about where the money you will invest will go, and how it will be used.

There’ll be a discussion on Property Stokvels at the upcoming Property Show. Get your tickets here!