A bonanza for first-time home buyers
You can’t please everyone, but easing fees is a bonus
FI R S T-TIME HOMEBUYERS and those downsizing into the af fordable market are probably still celebrating this week’s Budget speech after Finance Minister Pravin Gordhan raised the current threshold for transfer duty exemption.
As of March 1, the threshold for transfer duty exemption will increase from R750 000 to R900 000 – a positive Budget announcement for property owners.
However, the news was not as good for current homeowners, particularly the wealthy who would be taxed 45% for annual earnings of more than R1.5 million.
Property experts knew this year’s Budget was not going to be an easy one for Gordhan to navigate, and always expected it to bring about a higher tax burden on workers, especially due to the Treasury needing to find an extra R28 billion in a shrinking economy.
Therefore, the raising of the threshold for transfer duty exemption was a “most positive and welcome outcome”, said Seeff property group chairman Samuel Seeff. And he pointed out that it would enable more first-time homebuyers to get on to the property ladder.
“That said, the cost of home ownership remains high with homeowners burdened with rising property taxes, sectional title levies and ever-higher basic utility costs.”
He said the group was “pleased” there had been no further hike in transfer duty for the higher price brackets – something that had happened last year.
“However, while the increase in taxation of the wealthy in the for m of a new top marginal bracket and higher dividend tax may unfortunately be necessary, we are concerned at the growing burden at the top end.”
This was echoed by Lew Geffen, chair man of Lew Geffen Sotheby’s International Realty.
“We’re immensely grateful there was no increase in VAT, but the new super-tax bracket of 45% for individuals who earn more than R1.5m isn’t good news for the upper end of the residential property sector.
“And while we applaud the raising of the property transfer threshold, in reality it will only provide relief for low to lower-middle income households,” said Geffen.
“Minister Gordhan is not wrong that transformation is needed in South Africa, but not at the expense of the taxpayers on whose backs the economy is built.”
Concer ns were also expressed about the 30c/litre fuel levy hike and its impact on the costs of goods and services, ultimately lowering the amount of household disposable income.
Yet, while the fuel and RAF levy increases would add to the financial pressure felt by consumers, who have already dealt with interest rate hikes, electricity tariff increases and food price escalation, the relief provided in the affordable housing market through the rise in the transfer duty threshold would make a difference, said Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.
“Most banks require deposits of between 10% and 30% of a home’s asking price before they will finance the transaction. Deposit requirements and transfer duty fees made it impossible for many consumers to get their foot in the door – the change in threshold should change this to some degree.”
Mike Greef f, CEO of Greeff Christie’s International Real Estate, agreed. “We welcome the relief through the increase in the transfer duty threshold. This will help to facilitate successful home loan applications and will mean that house price growth will not be hampered.”
He did not believe the fuel levy would affect the Western Cape property market, nor did he feel that the introduction of a super-tax for wealthy individuals would negatively affect demand for mid-priced to luxury properties.
Enthusiasm about the tax exemption threshold was echoed by property experts such as Dr Andrew Golding, CEO of the Pam Golding Property group, who called this aspect of the budget “positive news”.
“This aspirant sector of the market is a key driver of South Africa’s residential property market, solidly underpinning activity, particularly in metropolitan hubs which increasingly draw a younger generation of home buyers wanting accommodation close to the workplace,” said Golding.
However, he believes that setting the bar at a tax rate of 45% for the wealthy sent a “less-than-encouraging” signal to high-net-worth individuals, and could “dampen sentiment” in luxury homes in the upper price band.
While this is a strong sentiment shared by many, the news from a real estate point of view was “not all bad”, said Berry Everitt, CEO of the Chas Everitt property group.
The raised transfer duty threshold would also benefit repeat buyers who had equity that they could use to cover deposit and transaction costs.
“This is because they will probably now need to borrow less and be able to pay off their home loans faster,” he said.
“We were also pleased to note that there is to be no increase for now in capital gains tax, which might have proved a deterrent to the buyto-let investors we see coming back into the market now as the growth in the number of households accelerates and the demand for rental homes continues to rise.”
Denise Dogon, CEO of Dogon Group Properties, said the Budget was “surprisingly good news” for buyers, and “not much change” was foreseen for the property market.
Herschel Jawitz, CEO of Jawitz Properties, believed the Budget’s impact on the residential market would be “mixed”.
“The increase in the transfer duty threshold is an exciting move by the Treasury to encourage home ownership, especially for first-time buyers. Very often, first-time buyers qualify from an affordability point of view but don’t have enough for the transaction fees or deposit to buy a property. This will make a difference.”
Furthermore, he said, as expected, there was no change to the R2m exemption on capital gains tax for a primary residence.
“The transfer duty threshold will reduce the transaction costs for buyers at this level by about R15 000 to R20 000, and will benefit firsttime entrants to the market who do not have equity in an existing home that they can use as a deposit, but must instead save up 10% to 15% of the purchase price, plus the transaction costs, in order to qualify for home loans.
“We expect to see a significant increase in home loan applications from first-time buyers. It is clearly part of a new government focus on trying to promote home ownership as the basis of personal wealth creation and one of the cornerstones of a more inclusive economy.” – Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest bond originator
“South Africa is one of the most expensive countries in which to buy or sell property. A person buying a home for R2.5m can pay upwards of R180 000 in fees and transfer duties, and one selling a home for the same value can pay more than R200 000 in fees. Lowering the transfer fee amount will help more South Africans own homes.” – Crispin Inglis, co-founder of PropertyFox
“It will be a huge relief not only to first-time buyers but also to many owners who are downscaling from large homes to smaller ones in order to reduce their expenditure on maintenance, rates and utilities such as water and electricity.” – Gerhard Kotze, managing director of MD of the RealNet estate agency group
“It could serve as a catalyst for consumers who wish to sell their properties below R900 000 and then go on to buy more expensive properties.” – Harry Nicolaides, CEO of of Century 21.