Four ways to buy property in SA

THERE are now four ways in which South Africans can buy property, and buyers should give careful consideration to the legal entity they use given the merits of each.

Re/Max southern Africa chief executive and regional director Adrian Goslett said properties could be acquired by a natural person conducting business in their own name, or by a juristic person – a legal entity such as a company, trust or close corporation.

Buying as a natural person is the most common option and incurs transfer duty on a sliding scale.

Last week Rhodes University Business School associate professor Matthew Lester told the BDO post-Budget presentation that Finance Minister Nhlanhla Nene had introduced South Africa’s first wealth tax when revising the maximum transfer duty bracket to 11 percent.

Primary residences bought by natural people do not accrue capital gains tax on the first R2 million profit.

“The downside to owning a property as a natural person is when the buyer is self-employed and, unable to pay creditors, the home becomes the primary target,” Goslett says.

Buying property as a company attracts the same transfer duty rates, but these fall away if the seller is registered for value-added tax (VAT) and the property forms part of the operations for which they are registered.

Properties sold as part of a rental portfolio, or as a going concern such as a guest house, require the deed of sale to contain specific provisions and may be zero-rated for VAT, nullifying the transfer duty or VAT due.

Company-owned properties accrue a higher capital gains tax rate, but never accrue estate duties.

While the Companies Act of 2008 phased out new close corporations, existing entities can continue operating until deregistered, dissolved or converted to companies.

These entities face the same transfer duty, capital gains tax and tax implications as companies, but are managed by their members and ownership is restricted to 10 natural persons.

Buying properties with trusts means the property does not become part of an individual’s estate when he or she dies – effectively benefiting from estate duty sav- ings. Trusts are also separate legal entities and the properties are protected from beneficiaries’ creditors.

The downside is that they attract the highest capital gains tax rate and the trustees, not the founder, have control over the asset.

FNB housing finance head of projects Simphiwe Madikizela says buying a home is a significant decision that requires carefully weighing up the long-term financial commitment.

“There are many different aspects to consider, especially in the affordable market where 96 percent of customers are first-time buyers shifting from renting.

“Considering how you will fare financially is possibly the most important factor when deciding to buy a home for the first time,” he says.

There are significant differences between renting and buying, starting with the upfront costs of bond registration, transfer duty (if applicable) and conveyancing fees.

Then come monthly mortgage repayments, rates and taxes, levies, water and electricity, home owners’ and household insurance.

Renting requires providing a month’s rental deposit and the monthly electricity and water accounts on the property.