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No tax relief in sight for home buyers

22 February 2016   (0 Comments)
Posted by: Author: Alistair Anderson
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Author: Alistair Anderson (BDlive)

Given the state of the economy and the pressure on the fiscus in terms of tax revenue, there is unlikely to be any transfer duty tax relief in Wednesday’s budget for home buyers, especially at the upper end of the market.

"Last year saw a meaningful shift of the transfer duty tax burden from the lower to the upper and luxury end of the market, with buyers paying 11% per R1m where the purchase price for the property is above R2.25m. Surprisingly we saw very little impact, if any, on the market at the upper end as a result of the increase in transfer duties," said Jawitz Properties CEO Herschel Jawitz on Friday.

Seeff Properties chairman Samuel Seeff said it was best for Treasury not to meddle with the transfer duty tax burden again.

"There is clear evidence that luxury buyers in top-end areas, such as Cape Town’s Atlantic Seaboard and City Bowl, as just one example, are staying put, opting to extend and renovate rather than sell," he said.

"The legislated transaction costs are just too high. When you factor in the aspects that make up the costs of transacting — transfer costs, transfer duty and capital gains tax — sellers are in some instances having to fork out the equivalent of up to 20% of the value of the purchase price just in costs," said Mr Seeff.

He said that on a R5m transaction, the additional transfer duty meant the buyer had to pay an extra R70,500, and on a R10m transaction, an additional R220,500.

The Atlantic Seaboard and City Bowl generate about a third of the total annual sales turnover for the Cape metro. Last year’s sales, according to the Propstats estate agent database, amounted to nearly R7bn.

Almost 90% of this fell above the R2.25m price mark and, of that, about 40% was above the R10m mark.

"As you can see, it is quite a sizeable market which is already, before taking last year’s transfer duty hike into account, generating significant income for the fiscus," Mr Seeff said.

Mr Jawitz said he was hoping there would rather be relief for entry-level home buyers.

"The other option would be for the threshold below which transfer duty is not payable to be increased in line with property price growth in 2015, which would mean an increase in the threshold from R750,000 to R800,000, as this threshold was increased by 25% from R600,000 to R750,000 last year," said Mr Jawitz

Economist Colen Garrow said raising the lower threshold would encourage home ownership while the state struggled to deliver housing.

"Raising the transfer duty threshold may lose some money for the fiscus initially, but home ownership encourages economic activity elsewhere in the economy, (for example), in retail goods and services," he said.

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