Housing slump hits Government

NOT ONLY ESTATE AGENTS and mortgage originators have lost money hand over fist on the back of a decline in house sales: Government has been an equally big loser, with tax revenues earned from property buyers through transfer duties down a colossal R4bn over the past four years.

Latest figures from Treasury show in the year to end-February 2010 Government revenue from transfer duties was R4,6bn - down nearly 50% from the R8,51bn reaped by Government at the height of the property boom in the tax year to end-February 2006 (see graph).

Treasury's figures on transfer duty revenues clearly illustrate the extent of the slump experienced by SA's housing market over recent years, both in terms of volume and value. It also explains why Finance Minister Pravin Gordhan ignored industry calls to lower transfer duties in his recent Budget speech.

Chances of Gordhan announcing transfer duty concessions in next year's Budget appear equally slim. The fiscus can simply not afford to offer any relief and risk further revenue shortfalls until the long-awaited housing recovery is well under way.

Interestingly, Government is rather bearish about the prospects for a strong housing recovery materialising soon. Treasury estimates income from transfer duties over the next 12 months will be around R5bn, representing year-on-year growth of only 8%. But Treasury expects a steady rise in income from transfer duties over the next three years, reaching R6,73bn by 2012/2013. But that's still nowhere near the R8,51bn level seen in 2006.

The last time transfer duties were amended was in 2006, when the tax-exempt threshold was increased from R190 000 to R500 000. SA's estate agents have pleaded for further transfer duty concessions to make homeownership more affordable.

It's been argued that SA homebuyers are paying far higher transfer duty tariffs than most of their overseas counterparts. For example, in Britain, Germany and Switzerland homebuyers generally pay less than 4% of the purchase price in transfer duty. By contrast, South Africans buying a home priced between R500 000 and R1m are currently subject to transfer duty of 5% of the buying price, while properties selling at more than R1m are taxed at 8% of the value above R1m, plus an additional R25 000.

Jonny Novick, MD of Vered Estates, says that means someone looking to buy a house priced at R1,5m needs a cash reserve of R65 000 to pay transfer duties, plus around R15 000 for the conveyancer's legal fees. Novick says if a 10% cash deposit (R150 000) - as still required by most banks - is added to the equation it becomes clear how unaffordable it currently is to buy a house in an average middle class suburb in SA.