The advantages and pitfalls of property co-ownership

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“There are many advantages, among them that it enables younger people to purchase property, bringing down the average age of first-time buyers whilst giving them a headstart when they want to settle down. It also allows one to take care of extended family and reduce individual expenses.

“And, considering the scarcity of affordable retirement accommodation and the fact that these days most retirees are still active, setting up a communal home is a great way to retain independence yet share financial, household and maintenance responsibilities.”

Odendaal says that most banks are open to granting joint bonds and that the criteria and documentation is exactly the same as for single applicants with no additional requirements.

“They will, however, require all parties to have a good credit record, demonstrating that they have managed the repayment of their debt responsibly.

“And they must jointly have sufficient net surplus income after deductions and expenses to afford the monthly repayment of the home loan."

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Improved affordability

He adds that the pooling together of joint buyers’ income to improve affordability, having a sizeable deposit, along with good credit scores will significantly increase their chances of success and of securing home loan finance at an attractive interest rate.

“Joint legal ownership automatically provides each owner with equal shares in the property acquired, commonly known as co-ownership in undivided shares and they are jointly and severally liable for the debt,” says Grahame Diedericks, manager principal in Midrand for the group.

“However, it’s also possible for the owners to enter into an agreement whereby each party acquires different shares of the property, for instance one owns 70% and the other 30%, and this information must be recorded in the title deeds of the property.”

He offers a word of caution: “Although this form of purchasing and of ownership has many compelling advantages, it must be borne in mind that there will almost certainly come a day when the property will be sold, possibly not always under positive circumstances.

“And regardless of the circumstances, it will be much more difficult without an existing agreement in place - and creating one retrospectively is not an easy task.

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Needs to be an agreement in place

Diedericks adds that a number of occurrences can precipitate this difficult situation, including death, financial misfortune and immigration and for everything to be amicably resolved, there needs to be an agreement in place.

He outlines the most important aspects required in a partnership agreement, whether business or personal:

1. Outline your contributions – Contributions can be monetary (cash investment), physical property (such as furniture and appliances) or even labour and time (home renovation). As far as possible, ascribe a value to your contributions and decide who pays which costs for the property. Keep precise records of all payments. Remember, it’s an investment and should be treated as such. If there is an income stream, establish how this will be divided.

2. Decide how decisions will be made - Decision-making can slow processes down, so decide upfront on how decisions will be made, especially if no consensus can be reached. As difficult as it may be when all is hunky dory, consider what would happen if there is a breach of trust or a conflict of interest.

3. Decide how conflicts will be resolved - Disputes aren’t always avoidable and, if left unresolved, they can have serious consequences for your business or your relationships. To protect these relationships, ensure the partnership agreement includes a section on dispute resolution.

4. Apportion the assets – In other words, determine how you will distribute your capital gains and/or profits and how will you deal with losses and additional cash flow requirements. What will happen to shares in the event of death?

Odendaal concludes: “At the end of the day, the more people that we can help to own their own homes, the more those people will have proper roots and a stake in this country and its success.

“And there is very little that compares to the joy and satisfaction of owning one’s own home – a space to call your very own.

“Co-ownership can be a very successful investment model, but I cannot over-emphasise the importance of ensuring that the agreement is in writing and that it is done before buying a property.”