Buying property comes with all sorts of challenges. Not only is the purchase itself a large financial outlay but it comes with extra costs such as a deposit, transfer duties and legal fees. These costs, coupled with the increasing difficulty to get a home loan, leaves a lot of South African’s without the means to own property. That is, until now…
Peer-to-peer lending or financing has existed in South Africa for the longest time. The stokvel system used in farming communities is one such example. Essentially peer-to-peer financing is a way of funding financial transactions without the involvement of the bank. A peer-to-peer property sale is one of those financial transactions.
Traditionally buying property requires a home loan, but with more than half of the 19 million credit-active consumers in South Africa having impaired credit records, getting a loan can often prove very difficult. This is compounded when a buyer wants to acquire a second home like a holiday house or vacant plot where the bank demands a deposit of 30-40% of the purchase price.
We have all been conditioned to go to a bank to obtain a home loan to buy a property- with Peer-to-peer property transactions- you may not need a bank right now, perhaps later, once you are in a much better situation to negotiate better terms and conditions- or perhaps never.
Peer-to-peer property transactions is one way to get around the bank’s heavy demands. For one to work you need a few things; a property for sale, a willing seller and a willing, capable buyer.
Essentially we have the seller operating as a temporary bank. The parties agree on a price, terms and conditions, and are ready to enter into a peer-to-peer property sale contract. The seller retains ownership of the property but the buyer is the one who takes over servicing the costs such as an existing mortgage, insurance, and rates. The contract even factors in the annual inflation so the owner does not lose out on any capital growth. The contract between the seller and the buyer is laid out much like that of a bond, with certain amounts put aside for the saving of a deposit that will be used to get a loan to buy the property outright at a later stage.