Co-ownership as a way to get a foot on the property ladder

With the average age of first-time buyers having jumped to 35 and retirement savings being steadily reduced by a weakening economy, more and more people are considering a joint property investment to get a foot in the property market and take care of extended family.

Jill Lloyd, Rondebosch and Claremont area expert for Lew Geffen Sotheby’s International Realty, believes this is an excellent way to do so – and to stimulate the housing market – but cautions that it is essential to ensure that a legal agreement is in place between the prospective co-owners before they go ahead with a purchase.

“There are many advantages to buying property together, including that enabling younger people to purchase properties will rev up the market, bring the age of the first-time buyers down again, and also give them a head start when they want to settle down.

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

Read: Choosing your retirement home

Kay Geldenhuys, head of sales fulfilment for bond originator ooba, agrees. She adds that banks are happy to grant joint bonds and that the criteria and documentation are the same as for single applicants with no additional requirements.

“Banks will require both buyers 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 repayment of the home loan instalment.”

Making the unaffordable affordable

She adds that the pooling together of joint buyers’ income to improve affordability and also having a deposit along with both buyers having a good credit record 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 Geldenhuys.

“But it is possible for the owners to enter into an agreement whereby each party acquires the property in different shares, for instance one owns 80% and the other 20% of the single property and this information must be recorded in the title deeds of the property.”

Consider the disadvantages

Lloyd 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.

“This will be much more difficult without an existing agreement in place – and creating one retrospectively is not an easy task.”

David Dewar, director of Thomson Wilks Attorneys, Notaries and Conveyancers, says: “Whether by choice or not, the dissolution of any partnership is likely to be emotionally charged and this will be significantly exacerbated if there isn’t an agreement in place regarding jointly owned property.

The love blindspot

“Picture this: Susan and Kevin purchase a home together although they are not married. They are so in love that neither feels the need to make provisions for the equal division of their assets, including the home they bought together.

“Unfortunately, 12 years later, they decide to part ways, but cannot reach an agreement on what to do with the property – and an already traumatic situation is not only made far worse but also protracted.”

Dewar adds that many other occurrences can precipitate this difficult situation, including death, financial misfortune and even immigration, and for all 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

Your contribution as a partner includes cash investments, physical property, such as furniture, and your home.

As far as possible, ascribe a value to your contributions and also decide who pays which costs for the property. It is advisable to keep a record of all payments, maybe even to the point of having financial statements.

It is an investment and must be treated as such.

If there is an income stream, establish how this will be divided.

If the use of the property is to be shared, such a holiday house or co-habitation (not as a couple), who gets to use what, and how will that be carried through to the division of the costs?

2. Decide who makes the decisions

Decision-making can slow processes down, especially in business environments, and indecisiveness can cause many a family dinner to be ruined.

Decide upfront how decisions will be made, especially if no consensus can be reached. As difficult as it may be, consider what would happen if there is a breach of trust or a conflict of interest? What risks will you face if your partner in the investment is a gambler or starts taking drugs?

3. Nip conflict in the bud

Disputes are an inevitable part of life, but can have serious consequences for your business or relationship if left unresolved. To protect these relationships, you must ensure that your partnership agreement includes a section on disputes and how they will be resolved –  via voting rights, final say, through mediators or a consensus, for example.

Every relationship goes through difficulties and if they are dealt with the partnership has every chance of continuing. But if not, it could lead to dissolution.

4. Divvy up the assets

In a business scenario, this means determining how you will distribute your capital gains and/or profits, and how will you deal with losses and additional cash flow requirements.

On a personal level, this could refer to how your assets are distributed to your family – on your death, for instance. Are you going to use a will or a trust to minimise estate duty? Will your primary residence be sold, and the profits after debts and other taxes be divided equally among your children or beneficiaries? Or will it be put into a trust, so they are able to make use of it in perpetuity?

Dewar says the most important advice he can offer such buyers is to make sure that the agreement is in writing and that it is done before buying a property.

Lloyd adds: “The more people 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 own.”

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