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Cape Town - Finance Minister Pravin Gordhan announced in his Budget 2017 that properties less than R900 000 will no longer attract transfer duty.
Jonathan Kohler, CEO of Landsdowne Investment Properties, applauds this announcement.
“This move will help to encourage home ownership in South Africa – especially in the second-hand market. With higher prices in new developments such as the Fourways Precinct attracting building costs of approximately R19 000 per square meter and other new developments in the Waterfall area attracting building fees of approximately R23 000 per square meter, the Budget 2017 announcement will positively impact prospective first time homeowners who will now be able to enter the market," said Kohler.
"Buyers can now purchase very good value second-hand properties in popular locations with a cost of between R9 000 and R12 000 per square meter – making it an attractive investment falling below the R900 000 transfer duty threshold."
With the steady increase in property prices over the past 24 months, this is a welcome relief to individuals wanting to enter the market as well as existing property owners wanting to sell with good appreciation and get back into market again, in his view.
"For over 12 years in the residential sectional title space, the one bedroom apartment has been the best investment property performer. This announcement will further boost this portion of the market," said Kohler.
According to Jacques du Toit, Absa property economist, the transfer duty threshold on property increased to R900 000 will support housing affordability in view of consumers and households that came under increased financial strain due to inflationary pressures and rising interest rates since early 2014.
"We always knew that this was a budget that was set to bring a higher tax burden, especially for the wealthy and tougher times for consumers on the whole as Treasury needed to find an extra R28bn in a shrinking economy," said Samuel Seeff, chair of the Seeff property group.
Insofar as the property market is concerned, the raising of the threshold for transfer duty exemption from R750 000 to R900 000 effective from the 1 March is the most positive and welcome outcome for Seeff as it will enable more first time home buyers to get onto the property ladder.
That said, the cost of home ownership remains high with home owners burdened with rising property taxes, sectional title levies and ever-higher basic utility costs.
"We are pleased that there has been no further hike in transfer duty for the higher price brackets as was the case last year," said Seeff.
Bruce Swain, MD of Leapfrog Property Group, said buyers were given some relief in 2015 when the threshold was raised to R750 000 (up from R600 000 in 2014). This further increase to R900 000 will do much to alleviate the pressure on buyers, which will in turn boost the property market”, says Swain.
Swain applauded Gordhan for appealing to home owners, especially in the lower end of the property market, to hold on to their homes for longer.
“A house is an asset that can be used to generate real wealth – not just by eventually selling it for a good price, but to by using it as collateral to fund a child’s education for example. This is responsible advice that ought to be applied by all South African home owners,” said Swain.
The raising of the threshold for transfer duty on properties sold for less than R900 000, up from R750 000 is positive news as it provides some relief for first time home buyers, said Dr Andrew Golding, chief executive of the Pam Golding Property group.
“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.
“Also welcome is the increased investment in infrastructure and transport networks as well as in integrated urban development projects and township precincts, as this helps provide a catalyst for growth in the housing market.”
Linda Erasmus, CEO of Fine & Country sub-Sahara Africa, is pleased with the relaxation on transfer duty for the lower income groups.
She said this will assist younger people as well as those from the lower income groups to fulfil their dreams of home ownership.
"Most important is that, when these people live and work inside city hubs, this relaxation eluded them before in terms of the value. It is now possible to buy something closer to the city hubs and this is a brilliant move to ensure that the market is pushing from below, going upwards, avoiding a gap," said Erasmus.
"On the other hand, it will also once again activate the investment market which will, in return, offer good rental opportunities especially closer to the bigger city and urban hubs."
Shaun Rademeyer, CEO of BetterLife Home Loans, said home buyers and sellers alike should be delighted with Gordhan’s announcement that the transfer duty threshold on home purchases is to be raised from R750 000 to R900 000.
“This will immediately reduce the transaction costs for buyers at this level by about R15 000 to R20 000, and will especially benefit first-time 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," said Rademeyer.
“We expect to see a significant increase in home loan applications from first-time buyers as a result of this change, which 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."
Gerhard Kotze, MD of the RealNet estate agency group, said from his point of view, there will be an immediate benefit from the increase in the transfer duty threshold to R900 000.
“This will be a huge relief not only to first-time buyers but also to many existing owners who are downscaling now from large homes to smaller ones in order to reduce their expenditure on maintenance, rates and utilities such as water and electricity,” he said.
“Meanwhile the change will lower the amount of cash that first-time buyers need to cover a deposit plus transaction costs, and that will definitely make it easier for them to acquire their own homes sooner rather than later.”
On a home priced at R900 000, the cash amount required for transaction costs will now decrease from almost R40 000 to approximately R25 000 – and being able to put the difference towards the deposit will definitely bring forward the purchase date.”
Berry Everitt, CEO of the Chas Everitt International property group said further positives for property are the significant additional Budget allocations to boost the establishment of small businesses, road and rail transport and other industrial infrastructure, facilitate wider access to broadband internet, boost tourism and redevelop and improve urban housing environments.
Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa agrees with the message from Minister Sisulu that consumers in the lower incomes bracket should retain property ownership.
“Property can be used as a cornerstone to build wealth, but that requires the owner to hold onto it. An income can be generated from renting the property out while enquity is built up and the property appreciates in value,” explains Goslett.
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