In this digital age, more and more people are “getting connected” resulting in multiple platforms for audiences to share ideas and collaborate, especially in the case of raising funds. Many Entrepreneurs have great ideas for businesses and want to venture into the property world but in most cases, they lack the required capital. A possible solution to this appears to be the use of Property Stokvels as a means to raise capital and finance businesses.
A Property Stokvel can be defined as a type of credit union in which a group of people enter into an agreement to contribute a fixed amount of money to a common pool either weekly, fortnightly or monthly.
Uses of Property Stokvels
- The most common use of Property Stokvel is buying and leasing. This is where members contribute money to buy a property, rent out, maintain and manage it with each member benefitting from the rental income.
- Another is Home purchasing. This is where members contribute money to secure homes for every member of the Property Stokvel.
- Investing in vacant land. This is where the members buy a vacant plot, pay it off and then use the stokvel as a means to fund prospective build on the plot.
- Another use which is popular among members who do not want to deal with the management of the property, is purchasing shares in a property investment portfolio. This is where the Property Stokvel creates annuity income for members.
Regulation of Property Stokvels in South Africa
Property Stokvels are not part of the formal business sector and, as it stands are not regulated in South Africa. There, therefore, appears to be no legal protection offered to a Property Stokvel and its members. Irrespective of this, Property Stokvels appear to be a current and growing trend in South Africa.
It is essential that a prospective member does the necessary due diligence before joining as currently, there appears to be no legislative or regulatory framework which governs the establishment and conduct of Property Stokvels.
It is furthermore, recommended that members formulate their own constitutions that will deal with the rules, regulations, membership information, duties & responsibilities of each member, goals of the Property Stokvel and what should happen when a member leaves or is unable to keep up with their financial obligations.
Should you require assistance with any Property Stokvel transactions or, need advice in respect thereof please contact SchoemanLaw Inc.