Southern Cross Terminating Mutual Building Society

WHAT IS THE SOUTHERN CROSS?
BASIS OF CONTRIBUTIONS.
MANAGEMENT.
WHY A TERMINATING BUILDING SOCIETY?
NEW SECTION M.
APPROPRIATIONS AND LOANS.
PUTTING THE SOCIETY'S USEFULNESS INTO PERSPECTIVE.
OPERATING RULES.
HOW LONG DO I HAVE TO BELONG TO THE SOUTHERN CROSS?
SELLING THE HOME.

WHAT IS THE SOUTHERN CROSS? back to the top

It is a group of people who have got together to benefit each other by creating a fund through monthly subscriptions that are then used to advance loans to those same members on security of immovable property.

BASIS OF CONTRIBUTIONS back to the top

Members contribute towards shares in the society; the size of the holding at their own discretion up to 250 shares under one identifying number.

Any member may hold as many multiples of 250 shares as they can afford but each multiple will have a separate identifying number.

MANAGEMENT back to the top

The society is managed by a secretary whose duties are overseen by a board of 7 directors.

The composition of the board is a medical doctor, a practicing attorney, two chartered accountants, a director of companies, an estate agent and the society secretary.

The only paid official is the secretary.

WHY A TERMINATING BUILDING SOCIETY? back to the top

Until the revision to the Act controlling Building Societies, the Southern Cross and others like it fell within the ambit of that Act.

As the finance structure of South African banking evolved, building societies as separate financial institutions became extinct and the banks assumed the function of funding home loans. With the advent of the new Act, Terminating societies became decontrolled and administration became the responsibility of the members through their appointed Board of Directors. The same standards of accounting, reporting and supervision have been maintained but the change has allowed the Board to offer upgraded facilities, particularly with relation to the advances to members.

Terminating societies, as distinct from permanent societies, were formed to provide a finite size for a section that would, at the directors' discretion, terminate once all members of the section had received their benefits. Subsequent sections would be opened, membership of which was available to existing members of older sections and to new members.

NEW SECTION M back to the top

Over the 99 years of the society's existence there have been 11 sections, from A to L omitting I.

Currently the directors are promoting a new section to be known as Section M.

The board have set as an objective the subscription for 40 000 shares in Section M for which they expect to collect R24 000 per month, and will advance a maximum of R50 000 when this amount is available.

Provided the 40 000 shares are taken up, it is the intention to make the first appropriation 1 month after opening. With the time lag to allow for documentation and bond registration, additional collections will be made to fund the loan. Subsequent appropriations will be scheduled on this same principle, i.e. when the sum of R50 000 is forecast as being available, the loan will be allocated.

Members will be required to subscribe 60c per share per month for a period of 134 months until the sum of R80 per share is paid up, at which time subscriptions will stop without any prejudice to the members rights to participate in the loan process.

The first and every odd-numbered appropriation will be free of interest.

Even-numbered appropriations can be contested by the members at an auction to be conducted by the Secretary in the presence of any member who wishes to attend at a time and date to be set by the Board and to be advised to all members. Auction bids will be accepted on approved proxy forms.

APPROPRIATIONS AND LOANS back to the top

Two types of appropriation are conducted.

The first, being the odd-numbered appropriation, is conducted by ballot in the presence of interested members.

The second, being the even-numbered appropriation, is achieved by bidding at an auction of members. Bonds are registered for the full sum of all loans plus the premium offered at the appropriation.

Repayment rates will be set by the Board and will be geared to the needs of the section.

It follows that someone will be first and someone will be last. Active participation in auction sales is the key to proper usage.

PUTTING THE SOCIETY'S USEFULNESS INTO PERSPECTIVE. back to the top

The Directors acknowledge that members have to consider two negative factors.

First: There is a regular commitment to investment on which there is no visible return.

Second: The maximum amount at an appropriation is R50 000.

The investment for no return is the basic concept of the mutual society and the benefit really comes when the member eliminates the variable effect of a normal bond and the interest theron.

Do the mathematics and multiply the current repayment rate per R1 000 borrowed from a bank by 240 for a 20 year bond. Check the amount you will pay over and above the sum borrowed. Consider then the interest free aspect of an appropriation by ballot and then consider the additional borrowing following an appropriation by sale.

The benefits of using the Southern Cross are huge, regardless of any reduced interest rate that the banks might allow following Reserve Bank interest fixing.

There are other potential benefits that depend on subsequent balloting of sale appropriations that are a little difficult to quantify. Information on this aspect can be obtained by downloading the information brochure from this website.

The society is prepared to guide members on appropriate premiums to pay on sale without guarantee or commitment on the part of the society or its officers.

As to the maximum amount of R50 000 per appropriation, here the society has to consider the amount it can reasonably expect members to contribute.

We need to encourage membership from the range of potential property owners without catering for bonding large homes only. Provision is made in the rules for as many holdings entitling a member to bites of R50 000 borrowings as they might need to allow eventual 100% bonding to the society. The R50 000 loan value also ensures that there is an efficient rate of appropriation in a year and the directors yardstick is an average of 6 per year in the first 3 years.

If members accept that their first need is to be satisfied by a bank loan, then as long as the correct calculations have been made, a second bond will be acceptable to the society provided the first bond is reduced by the Southern Cross advance if the first bond is secured by more than 75% of the property value..

If cash flow is a problem, or if that is the way the member wishes to invest, the subscription for the next R50 000 holding can follow once the bond process is under way.

It is entirely feasible for a second subscription to the society to be paid for out of the adjustments arising from contributions and loan repayments. The secretary will gladly explain how this can be achieved.

OPERATING RULES back to the top

The society will call for a valuation of your property prior to agreeing an advance and will also expect to be advised of your income.

Tough rules are set to ensure the track record of no forced sales over the 99 year life of the Southern Cross but no advance is unreasonably withheld and the secretary is always available during office hours to offer guidance and advice.

The accounts are fully audited on an annual basis and in terms of the rules the Annual
General Meeting must be held before the end of July following a March year-end. Directors retire by rotation and nominations from the members are encouraged. The downside is that the monthly meetings are held in Cape Town and there is no useful remuneration.

HOW LONG DO I HAVE TO BELONG TO THE SOUTHERN CROSS? back to the top

That is up to the investor. Maximum benefit is gained by members staying in for life; maintaining the bond process with the society. Once the home is fully bonded to the society, subsequent entitlements can be used for any purpose you may choose.

SELLING THE HOME back to the top

On sale all amounts due to the society, including appropriation premiums will be recovered from the sale proceeds but will be held by the society for re-advance when a new property is offered. There is no requirement for further balloting on the recovered funds and the new bond is available without any waiting period. The normal verification of values and income will take place but the member can proceed with confidence that the society will finance the property given that the society's standards are met.