Property Bonds

In the current South African Market there are people who want to buy property but due to their credit rating and the bank's strict criteria on granting bonds, they are unable to obtain a bond.

However, a lot of these blacklisted people or persons with bad credit do indeed have the affordability and stability to pay a bond. Due to the economic recession, they had a financial downfall but in the mean time their circumstances have changed and they now can afford to buy property again.

The reason for many of these people's bad credit might be because of one or two late payments on some account(s) or a debit order that was returned for some or other reason. This resulted in the bank not willing to assist them with a bond.

The term "Blacklisted" has a very broad description. To be Blacklisted does not necessarily mean that you have a judgment against your name. It can be any of the above-mentioned scenarios and therefore being blacklisted doesn't cause you to be a bad person and doesn't mean that you won't pay your accounts either. For this reason Country Wide Group provides a service whereby we will assist persons, who are blacklisted, in getting a bond.

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How it all works?

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How do we do it?

We invite private investors to offer a bond on the property. In return they will receive a competitive interest rate on their money - up to +- double what the banks are currently offering.

How does it work?

Let us use the following scenario:

  • Let's assume Mr A wants to buy a house to the value of R500 000 and get turned down by the bank. Mr B has R500 000 and wants to invest his money in a low risk investment over a long term, earning maximum interest. In the current market he will receive +- 6,5 % p.a. on a fixed deposit, constituting a monthly income of R2 708.

  • He can otherwise opt for a money market option with a little higher return but with the disadvantage of no surety and he himself not being in control of his money - somebody else is controlling the money. By offering a bond on the property, he will receive 11 % per year or double the repo rate, in case of the interest rate increasing or decreasing.

  • The bond's interest rate will always be the repo rate plus 5,5 % interest. Thus Mr B will now be receiving a monthly income of R4 583 which is R1 875 per month more than would have been on a fixed deposit.

  • Advantage to the lender

    The lender receives an interest rate of 11 % per year, paid monthly in advance. The loan term is 10 years but can be reduced with a 12 month notice after the second year. Thus the minimum term is effectively 3 years (T & C's Apply).

    For every full year of the loan the lender will receive an additional 1 % interest per year. Example: If the amount of the bond was R600 000, the lender will receive R66 000 interest per year and at the end of the ten year term the full capital amount is payable to the lender.

    To guarantee his money, the lender will receive the following security:

    • Al property will be registered in the name of a company [(Pty) Ltd]
    • For a first bond on the property, the bondholder will be the lender through a legal entity either a (Pty) Ltd or a Trust.
    • Session of the shares to the lender in the company that owns the property (all property is owned by a Pty (Ltd) making it easier to take control of the property if the borrower defaults).
    • The borrower will enter into a rental agreement, with the company that owns the property. The rent amount will be equal to the monthly bond payment. The borrower will be a shareholder of the company and therefore still has to rent the property from the company. The lender will take session of the rental contract.
    • Rental insurance, which will also provide for legal costs in the event of the borrower defaulting (details will be provided.)

    What is Rental Insurance

    On the first day of each month the rent amount is paid into the account of the Landlord/lender, irrespective of when the tenant pays the rent. Rental income is guaranteed for 3 months, should the tenant default rental payments. The insurance covers legal costs should eviction proceedings be instituted against a defaulting tenant.

    Advantages of a lender

    • The lender himself is in control of his money and not somebody else who might play with the money on the stock or money markets over which the lender has no control or securities, only a piece of paper which is worthless when the stock/money markets crash as has happened in October 2008.
    • The lender receives his interest in advance.
    • The lender can lend out amounts from as little as R25 000

    What does this mean to the lender?

    • The lender receives a better interest rate on his money as with a fixed deposit with a bank.
    • The lender has surety for the money he lends out (first bond on fixed property, that can't disappear overnight, and various other securities).
    • Through the rental insurance the lender's monthly interest are guaranteed, and if the borrower defaults, it will be easy to evict and take control of the property.

    Advantages to the borrower

    • The borrower receives a fixed rate for a long term.
    • The borrower only pays interest monthly and at the end of the term pays back the capital.
    • Lower monthly repayments.