New property transfer duties: The bitter-sweet tale

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The changes to transfer duties are likely to boost first-time homebuyers in the affordable property market, but not buyers in the top-end.

This follows the announcement by Finance Minister Nhlanhla Nene on Wednesday that the rates and brackets for transfer duties on the acquisition and sale of property will be adjusted from March 1.

Properties acquired with a value of less than R750 000 will be exempt from transfer duties, a threshold which was raised from R600 000. Nene says the new threshold will provide relief to middle-income households.

CEO of Jawitz Properties Herschel Jawitz supports Nene’s view, adding that the increase in the transfer duty threshold will offer relief to first-time home buyers at the lower-end of the market.

To put the relief into context, under the old South African Revenue Services’ reform, buyers of a property valued at R750 000 would fork out transfer duty of R4 500. The transfer duty is derived from the difference between the property value and specified threshold plus 3% (R750 000 minus R600 000 plus 3% – see table below).

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Source: South African Revenue of Services. The old transfer duties calculation.

Under the new reform, a property valued at R750 000 will be exempt from transfer duties (see table below).

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Source: South African Revenue of Services. The old transfer duties calculation.

“The increase in the threshold is to some degree playing catch-up to the increase in property prices. The increase [in threshold] will enable buyers to save, as already transfer costs on properties in South Africa are high,” says Jawitz. It is estimated by CEO of Pam Golding Properties Dr Andrew Golding that about 50% of the market is under the threshold of R750 000.

The changes to transfer duties are also set to have a positive spin-off for the residential sector, as more demand is expected. Demand for residential properties is outstripping supply which might push nominal house price growth (before adjusting for inflation) up to 10% growth in 2015 – depending on the type of property, says Jawitz.

The new transfer duties will not only bode well for the low and middle-end market, but also buy-to-let investors. Managing director of credit bureau TPN Michelle Dickens says 87% of properties nationally are valued at R750 000 with an average rental of R7 000, which buy-to-let investors stand to benefit.

The new transfer duties reform will also decrease the amount payable for other properties valued up to R2.3 million. Buyers wanting properties valued at R2.3 million and above will have to dig deeper into their pockets.

For example, buyers of properties valued at R2.3 million will now incur an R85 000 base fee plus 11% of the difference between the specified threshold and the property value – in this case R50 000 (11% of R2.3 million – R2.250 000). This equates to transfer duties of R90 500.

Under the old reform, buyers in this category would incur transfer duties of R101 000 (the difference between the property value minus the threshold plus 8% and base fare of R37 000 – refer to first table).

Property value New transfer duties Old transfer duties
R 750 000 0 R 4 500
R1 million R 7 500 R 12 000
R1.5 million R 30 000 R 37 000
R2 million R 65 000 R 77 000
R2.3 million R 90 500 R 101 000
R2.5 million R 112 500 R 117 000
R3 million R 167 500 R 157 000
R3.5 million R 222 500 R 197 000
R4 million R 277 500 R 237 000
R4.5 million R 332 500 R 277 000
R5 million R 387 500 R 317 000

Duties impact consumers

Seeff Property Services chairman Samuel Seeff says buyers will think twice before making a move to top-end properties. “Or it will cause people to consider if they want to buy new properties or renovate,” Seeff says.

The new transfer duties will impact the top-end areas such as Cape Town’s Atlantic Seaboard, Johannesburg’s northern suburbs, KwaZulu-Natal’s northern coast and other premium coastal areas – where properties can fetch up to R100 million.

Property players say that the increase in transfer duties for the R2.3 million-and-above category adds to the already onerous list of costs involved in selling and buying a property. Already buyers face attorney, agent and deeds office costs on top of transfer duties when acquiring a property and, upon the acquisition, face on-going rates and taxes.

Despite this, buyers in the top-end market are resilient to absorbing property related costs, says Kay Geldenhuys, finance manager at mortgage originator Ooba.

“The new duties [are] not necessarily going to stop them [buyers] buying into the market,” says Geldenhuys. What the new transfer duties will do is limit the level of home owners changing properties. “People don’t buy and sell properties as they used to due to acquisition prices on properties,” she says. – Moneyweb

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