A sigh of relief for S.Africa’s Property Buyers as Transfer Duty reduced

Finance Minister Nhlanhla made announcement in the 2015 budget speech, which will see reduction in transfer duty that will provide some relief and incentive for aspirant home buyers in the lower end of the market.

Home buyers in South African can breathe a sigh of relief as Finance Minister Nhlanhla made announcement in his 2015 budget speech, which will see reduction in transfer duty that may provide some relief and incentive for aspirant buyers in the lower end of the market.

Minister Nene said the rates and brackets for transfer duties on the sale of property from next month will be adjusted “to provide relief to middle-income households”.

The new rates will eliminate transfer duty on all property acquired for less than R750,000. This threshold was stuck at R600,000 for several years, even though the average and the median house price was significantly higher.

Apart from helping entry-level buyers, Treasury's new rules will also decrease the effective transfer duty payable for all other properties acquired up to about R2.3 million. But those buying houses of more than R2.3 million will have to fork out more. Transfer duties for these homes will be R85,000 plus 11% of the property value above R2.25 million.

Dr Andrew Golding, chief executive of the Pam Golding Property group says the reduction in transfer duty will provide some relief and incentive for aspirant home buyers in the lower end of the market, while the decrease in transfer duty on property transactions in the price bracket between R750 000 and R2.3 million is also welcome news.

"However, the increase in transfer duties on property transactions above R2.3 million is regretted, as this places a further burden on the already onerous list of costs involved in selling and buying property," he said.

Transfer duty is a tax which increases in line with the purchase price of a property, with the overall effect of impacting on the market in general as it depresses selling prices and reduces liquidity in the housing market.

“While one may argue that those seeking to acquire a home with a price tag of R2.3 million or more can afford it; the fact is that people who want to buy a house need to find a chunk of cash in addition to the deposit. One also needs to take into account that people relocate and buy and sell property for a wide range of reasons, such as moving when changing jobs," Golding says.

“While the Budget was expected to be a difficult balancing act, with no surprise that more affluent South Africans will pay more tax, the huge increase of 80.5 cents a litre in the fuel levy, together with an increase, albeit temporary, in the electricity levy from 3.5c/kWh to 5.5c/kWh is unfortunate as these serve to further increase the burden on already cash-strapped and indebted consumers.

However with the fuel price decreased in recent months – a reduction which is expected to reverse to some degree as a fuel price hike is already anticipated in March (2015), this temporary relief  is now largely erased, resulting in increased transport costs for commuters across the board and creating an inflationary impact across the economy in general.

Golding adds: “On a positive note however, this was a solid, even-handed Budget that delivered fiscal consolidation, as promised. Ratings agencies and market participants are likely to be reassured that SA’s finances are on a sustainable path and it seems our investment grade rating is safe for now. Furthermore, the 2% GDP growth forecast underpinning the Budget estimates for 2015/16 is realistic."

While higher income consumers are obviously under more pressure as a result of the increased tax burden, it is encouraging to see that real attempts are being made to cut back on non-essential state expenditure. Increased investment in education as well as tax incentives for employment, skills and enterprise development is also welcome, as is the more generous tax regime announced for businesses with a turnover below R1 million.

“Furthermore, the fact that the Minister referenced the National Development Plan is reassuring. It is hoped that government’s proposed willingness to tackle the longer-term challenges places state finances on a more sustainable footing, helping to free up the necessary resources to deliver on the NDP goals, notably government’s proposed infrastructure programme.” concludes Golding.