A tale of two incomes: The rise of co-buying in tough economic times

With tough economic times making it harder to buy property in recent years, more South Africans are turning to co-buying as a practical way to become homeowners earlier than would have otherwise been possible. Fluctuating interest rates, coupled with rising property prices have seen this trend change the real estate landscape, and it’s made homeownership more accessible to more South Africans.

What is co-buying and why is it becoming more popular?

Co-ownership of property is a unique arrangement where two or more individuals jointly own an immovable asset, sharing both the rights and responsibilities that come with it. By joining financial resources, co-buyers are likely to have a larger deposit saved to put down against a home loan, which results in receiving better interest rate offers and terms from banks. Due to improved affordability, they’re able to look at more desirable properties and basically just “get more” for their collective money.

This makes buying a home more feasible and within the reach of more people, and a way of earning income from a property investment if it’s rented out. The shared rights can be equal or unequal and are usually defined by a legal document called a co-ownership agreement, negotiated and signed upfront.

Parents buying ‘starter’ homes jointly with/for their adult children, investors pooling finances to create a property portfolio, or friends sharing the cost of a holiday home – these are all examples of possible co-ownership agreements. There are many benefits to buying a property in this way, and some possible downsides which you should be aware of.

Shared financial responsibility, risk to generate wealth

This modern approach to homeownership is a forward-thinking solution to the challenge many face: you need money to make money. By sharing the financial responsibility of taking on long-term debt to build wealth, property ownership becomes instantly more accessible due to the lower shared upfront and regular monthly costs. Splitting an upfront deposit, the bond registration costs, monthly instalments on the home loan, rates and taxes, levies, insurance, maintenance etc. make it possible for first-time homebuyers to responsibly generate collective wealth. Other irregular/unexpected costs associated with unanticipated repairs, vacancy (in rental properties) creating an income shortfall, or market downturns resulting in increased instalments are shared among co-owners, reducing the individual burden and risk of owning property.

Property ownership is a way to build equity and long-term wealth. Co-buying allows individuals to enter the property market sooner than if they waited to buy on their own.

Access to better properties, increasing buying power

Co-buying increases the combined purchasing power of individuals, allowing buyers to afford larger and/or better located properties they may not afford independently. If the outcome of a property co-purchase is to rent it out to generate income, better located/larger properties are likely to command higher rent, further reducing the monthly financial burden on the property-owning partners.

Calculating joint affordability is important though, and the outcome of these exercises will allow the co-buyers to focus the property hunt on a more specific range and increases the likelihood of receiving home loan offers.

Easier loan qualification

Banks may be more willing to approve a home loan when multiple individuals share the financial responsibility, as this reduces the risk for the lender. But it’s important to be open and honest with your co-owners about your own financial situation and any potential surprises regarding any of the co-owners’ credit behaviour will impact an application for finance.

An application for a home loan may be more complicated with multiple parties, but a GetGo Home Loans Specialist will be able to assist with it. All parties will be required to provide their personal and financial information for banks to assess the application on its merits.

Be prepared though, to ensure your co-buying experience is a good one

When choosing who to enter a co-ownership agreement with, it’s best to carefully consider your investment partners and to have a good understanding of your and their goals/objectives before agreeing to buy a property together. By agreeing to a joint bond arrangement, you and your investment partner(s) accept joint responsibility for the repayments, taxes, and other costs related to the acquisition or disposal of the property. What this means practically is that if one of the owners does not provide their portion of the repayment, the other owner(s) will have to foot the bill for them.

To ensure co-buying works optimally, it’s crucial to:

  • Discuss your common/shared goals: Co-owning property can lead to disagreements and conflicts down the line, particularly when it comes to decision-making, usage and financial obligations. Align on whether the property is for investment, personal use, or both and how your specific scenario might practically play out.
  • Draft a co-ownership agreement, put legal protection in place: Clearly outline responsibilities, exit strategies and dispute resolution mechanisms. It will be beneficial to do this with a property attorney who is aware of possible pitfalls and cater for these in the agreement and thereby safeguarding the interests of all parties.
  • Agree on financial contributions and responsibilities: Determine how costs, profits, and liabilities will be divided and get this documented in your partnership agreement. The actions and decisions of co-owners can directly impact all parties involved, so protection of all parties is important.  If one co-owner fails to fulfil their responsibilities or decides to sell their share, it can create challenges for the other owners. You and your co-owners may have specific preferences regarding what you will be responsible for when it comes to property management (think maintenance, or property management), and this should all be agreed on upfront.

Co-buying can be an excellent option for first-time buyers, friends, family members, or business partners looking to invest in property together. As a concept, it fits well with our cultural value of Ubuntu, which emphasises the concept of “behaving well towards others or acting in ways that benefit the community”. This makes co-buying not just a financial strategy, but also a way to strengthen community ties.