Sustainable income creation

Backyard residential rental development has become a phenomenon in low-income townships across South Africa as a source of income for those with property¹. While backyard flats provide valuable income and job opportunities in markets suffering from chronic unemployment, the uncontrolled manner in which they have spread in the last decade - without consideration of property law or municipal regulation - has resulted in sub-standard construction, poor living conditions and unfairly treated tenants being the norm². When done correctly, however, this remains one of the most sustainable and significant sources of income for township residents and can be incredibly beneficial to all stakeholders involved.

‍

Bitprop’s homeowners receive 15% of the gross rental income collected monthly from the rental flats on their property; a completely new income stream that they can rely on without having invested any of their own capital. With the 15% rental payment, household income across our portfolio has increased by 54% on average.

‍

For the 12% of our homeowners who are unemployed and the 30% who are pensioners, the immediate increase in income has been 144% and 88% respectively, supplementing their state social security income or state pension.

‍

The rental income received by homeowners each month is, on average, 1.3 times the South African state pension³. At the end of the 10-year partnership, when each homeowner receives 100% of the rental income, they are projected to see an average household income increase of 356%*. Since our inception, we have distributed almost ZAR 2.7 million (USD 151 000) to our homeowners for their 15% of rental income; a number rapidly increasing as we expand.

‍

We have partnered with 95 homeowners who have an average age of 51 years and of whom 67% are women. Their households have 3,5 members on average, translating into a direct monthly impact of the rental income on approximately 332 people.

‍

In 2023, 18 million South Africans relied on social grants as their key source of monthly income.⁴ I the Western Cape where we have provided backyard rental flats, 14,3% of residents relied on social grants that amounted to a maximum monthly income of ZAR 2 090 (USD 110) per person. With the national unemployment rate currently at 32,6%⁵, a large portion of the population is severely financially constrained, meaning the positive impact created by the 15% monthly rental income cannot be overstated.

‍

Earning an immediate new monthly income stream is a tangible benefit, but the real value in the model lies in its sustainability. Key to this is enabling each homeowner to become a property entrepreneur so that after the 10-year partnership with Bitprop, they can continue to run a successful business. Throughout our time together, we work alongside each homeowner to equip them with the skills to run their property business. For some, entrepreneurial thinking comes easily, like a lady in Langa who is initially using her 15% monthly income to build a boundary wall on her property; a significant capital investment that increases the appeal, safety and value of her property asset. Others take guidance from our homeowner relationship managers, such as one of our earlier homeowners in iLitha Park who made a point of learning through observing how Bitprop resolves issues so that he can do the same once Bitprop has stepped away.

According to the University of Cape Town's ‘Open Access Monograph: Marketing to the South African Consumer’, making use of their classifications, approximately 60% of our homeowners fall into the ‘poor’ and ‘working poor’ income categories. Half of them move up an income bracket immediately once they receive their 15% share of the monthly rental income. When they receive 100% of the monthly rental income after 10 years, another 46% move up one income bracket, 33% move up two income brackets and 14% move up three income brackets.

‍

The primary use of the 15% rent earned per month by each homeowner, which is ZAR 2910 (USD 153) on average, is towards their children's education, with the most common expenses being school fees, school uniforms and transport to and from school. Homeowners also use the 15% monthly rental income to purchase groceries, pay municipal rates and services accounts, cover debt repayments, complete minor household repairs and purchase funeral cover and life insurance policies.

‍

For homeowners with high debt levels, the 15% income is applied to reduce debt at times, making them less likely to resort to loans from expensive, unregulated lenders. Beyond each homeowner, the new income streams have knock-on effects in the community. 15% of our homeowners hire cleaners to take out their bins and clean them, diverting about 20% of their monthly rental income towards employing local individuals, stimulating further entrepreneurial micro-businesses.  

‍

Homeowners seeking alternative income solutions such as Bitprop vary in profile. Some are recent retirees looking to leave a sustainable inheritance to their children. Some are working parents looking to set up long-term retirement income streams. Others already have shacks in their backyard and would like formal, sturdy structures to generate income now and to pass onto their children in the future. For those looking to build rental flats, financing is the biggest hurdle and for most homeowners, affordability and poor credit ratings prevent them from accessing formal, regulated funding. In South Africa, a good credit score is anything above 650 (on a scale of 1-720). The average credit score of our homeowners is 555 – well below that required to obtain a home loan to develop flats. For a few others, savings and borrowing from relatives might be an option. For many, expensive illegal credit might be the only viable alternative.