Asset value formalisation and growth

For most township backyard rental flats, the primary intention is to sustainably generate income, as demonstrated under the ‘Sustainable income creation’ impact theme, but by partnering with Bitprop, significant enhancement to asset value can occur too, without any capital utilised by the homeowner. In the formal property market, this is normally where the main reward is experienced - driven by the demand for living space and a property market where asset value increases over time. In townships, this inherent aspect of property ownership is largely unrealised as there is a lack of formalisation of ownership and an inaccessible development process¹. Without accurate title deeds, one cannot formally obtain value from a property through sale or mortgaging, and without accurate building plans, one cannot sell or borrow against the value of new developments on the property.

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Furthermore, although informal structures provide rental income, they can devalue the property due to the nature and quality of the structures. There is a risk of penalties being charged by the municipality on unapproved structures, and they reduce the value of the broader community through increased presence of informality and less safe living environments². Informal backyard rental structures are thus seen as primarily monthly income assets - a valuable benefit, but one which misses out on the long-term value creation inherent in formal property ownership.

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Our flats are designed and built according to South African National Standards, following design and safety requirements in every aspect, and will provide our homeowners with a full spectrum of property ownership benefits. We also assist with the correction of or transfer of title deeds, helping them realise the total potential value of their properties.

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The addition of the rental flats has resulted in an average property value increase of 204%. Through this formalisation process, we have helped each homeowner participate in the formal property market. Property value in Cape Town has increased by 141% since 2010² and the demand for accommodation has driven the development of backyard rental flats both formally and informally. In 2016, 13,4% of urban households in South Africa lived in backyard dwellings (formal and informal structures), up from 8,9% in 2011³. Rapid urbanisation driven by work-seeking migration to cities like Cape Town contributes to this trend.

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Long-term wealth and financial well-being come from asset security and in property, title deeds and wills are the most important tools with which to achieve this. Tenure security, and access to valid wills that provide generational succession, have been important premises since Bitprop’s inception, inspired by the work of the NGO, Khaya Lam⁴, which uses donor funding to help township residents secure formal title deeds to the land they live on.This is done with the belief that there is inherent value sitting dormant in properties that are locked up in the informality of the land ownership, as demonstrated by Peruvian economist, Hernando de Soto⁵. It is estimated that since 1995, at least 900 000 houses (35%)⁶ subsidised by the government were delivered to their owners without title deeds, and that 1,1 - 1,4 million beneficiaries currently don’t have the title deeds to their properties.

12 of our 95 homeowners (13%) have required some form of assistance with transferring their titles to the correct title holder, removing deceased or divorced spouses from their title deeds, or removing already settled mortgage bonds from their title deeds. By correcting title deeds, our partners will now be able to access the full value of their properties in the future should they want to sell, borrow against, or transfer to beneficiaries.

Title deeds prove ownership and assign the rights of a property to the correct person, but a will is needed to ensure that in death, assets are passed down to the preferred recipient. According to the Master of the High Court of South Africa, less than 15% of black South Africans have wills in place when they die⁷.

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This creates extremely complex situations regarding property ownership and estate succession; such as with our first property, for which the title deed was in the name of the homeowner’s mother who had passed away. During our partnership period, the homeowner herself passed away too, verbally leaving the property to her grandchild, but not in writing. Despite the family agreeing who was to inherit the property, the High Court is required to approve the inheritance. Furthermore, in this case, the grandchild is a minor so transfer remains impossible. Despite a clear succession plan in the family, without a will in place, the late owner has not been able to pass on her most valuable asset.

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Only 6% of our homeowners had wills in place when they applied to Bitprop. Since 2021, it has been mandatory for all homeowners we partner with to have a valid will. We assist with drafting the will, explaining its implications where applicable and having the necessary conversations with the beneficiaries and executors.

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By having a title deed and will in place, our homeowners’ perspectives shift from short-term to decades-long. Our homeowners and their families now have the documentation in place and are trained over the 10-year partnership to manage a successful rental business that will ultimately benefit all of them. This provides the stability necessary to benefit from participation in the property market and to develop intergenerational succession.

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Beyond each property, tenure security has a positive impact on the community. When one manages a successful property rental business that will provide long term benefits to generations of beneficiaries, one takes better care of the property and its surroundings. At scale, this means a more vested interest in the well-being of the community. One of our newer homeowners in Langa, Cape Town, had community members approaching her saying her flats were ‘bringing Parklands to Langa’, referencing a much more modern, higher value suburb in Cape Town. Another homeowner saw a man looking at her flats for a long time, who when approached, said he was simply “admiring the flats”. Such community pride cannot be overlooked and the benefits of this must not be underestimated. Those who have a stake in the community are more likely to look after it, keep it clean, tend to vegetation and take an active role in promoting safety and security. With formal property ownership, participation in the community becomes evident and the incentive to contribute increases significantly, a benefit to society.