Property ownership can do more for families than just provide shelter, security and a space in which to create memories – it can create wealth for future generations.
As these assets are passed down to children and grandchildren, they can continue being lived in by the same family or they can be sold for cash that can be used to buy other properties. Either way, this ownership gives future generations a much-needed head start.
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For many South Africans, though, this advantage is not attainable. “There are segments of society where the concept of using property to create, store and transfer generational wealth is well understood and tested over time and has yielded favourable benefits for the descendants,” says Vuyiswa Ramokgopa, chief executive of the South African Institute for Black Property Practitioners.
“However, there are also still large segments of our society where we are now experiencing first-generation property ownership. So, it will take some time to really have an impact and shift wealth patterns.” She says until relatively recently black South Africans were largely prohibited from owning property or land, especially in urban areas, and were only able to rent.
“In rural areas, land was, and is, largely owned in communal ownership structures, which makes it nearly impossible to reap the benefits of generational property ownership. As a result, we are only now experiencing the first real wave of home and property ownership among young Africans and starting to build the foundations of generational wealth creation.”
Aiding this movement is the fact that there is a lot more awareness about, and interest in, owning property for investment purposes and people are deciding to purchase property a lot earlier.
“I think many young Africans are still grappling with ‘black tax’ and there is a desire to break the cycle and not inflict the same fate on our own children,” Ramokgopa says. Other challenges to the start of creating generational wealth through property ownership include unemployment and inconsistent employment.
This reality inevitably delays a person’s ability to enter the housing market and maintain a consistent credit record. “Young people need to be taught how to cultivate responsible financial habits and build their credit scores long before they even start contemplating purchasing their first property.”
She notes: “Property ownership is still very relevant and remains one of the most reliable long-term investment classes. There will always be newer, sexier things one can invest in – and people should always look to diversify – but property remains the most reliable method of storing and transferring wealth inter-generationally.”
Another hurdle to creating generational wealth is the lack of property ownership opportunities and savvy in many communities.
Matseleng Mogodi, founder and principal at Snooks Estates, says: “Currently, we could maybe look at property ownership and who owns the vast majority of property? It is certainly not black people, and sadly, as the masses scramble for RDP housing and land to build shacks, the real business of property ownership is slipping through the fingers of South Africans.”
In previously disadvantaged communities, she says, people first have to get over the hurdle of owning property; until then, building generational wealth is a “far-fetched idea”. It is, however, one that can come to fruition “if people are willing and ready to think and do things differently”.
“Building generational wealth in property goes hand in hand with emancipation from not having basic shelter.” Mogodi adds: “Building generational wealth comes with being ready to build yourself as a person, holistically. It is important to have a family whose members are willing to work together to build this ‘generational wealth’.
Ideas and dreams are good, but if you are not willing to do what it takes, it may not work.” While some young people are buying property, many others are caught up in “lifestyle management”. “There’s nothing wrong with having a great lifestyle, but if you can’t pay for the lifestyle, you might even lose the property you own. It’s therefore important to ask yourself how this lifestyle is helping you grow your property portfolio. Your answer will help you see whether you have a desire to grow property wealth or not.”
The South Africa of the past has created “such a dent in people’s minds”, Mogodi says, many do not believe they can own property or build generational wealth. However, she is blessed to have witnessed many families owning a property for the first time and to have shared in the “tears of joy”.
“It is in those moments that one can build the next moment – of growing a property portfolio.” Echoing this, Ramokgopa says she is “personally very encouraged by the surge of young people, particularly women, who are taking the plunge and investing in property”. She hopes, over time, more of this trend will be seen.
For South Africans who want to take that first step onto the property ladder, but perhaps are not in a financial position to do so, Paul Stevens, chief executive of Just Property, says they could consider buy-to-let partnerships.
“I’ve always seen property as one of the best ways to create wealth and leave a legacy. There certainly are opportunities out there right now, and if you’re young or don’t have the capital to take advantage, then co-buying – setting up a buying partnership or a syndicate – can help you get a foot in the door.”