Despite Finance Minister Trevor Manuel’s welcome lighter tax load on property stamp duty and transfer duty implemented since 2002, further relief is needed as house prices continue to rise in South Africa.
Saul Geffen, MD of MortgageSA, one of South Africa’s leading mortgage originators, says: “Last year’s budget was extremely helpful to those not yet on the property ladder. By increasing the threshold at which transfer duty on fixed property becomes payable from R190 000 to R500 000, it made a home more affordable for a whole new sector of homebuyers.
“And by increasing the threshold levels and rates above R500 000 at which transfer duty is payable, all South Africans found property more affordable. But, clearly, as house prices continue to rise, we hope the minister will further ease the burden of transfer duty to make home ownership more affordable.”
Geffen says that easing the tax burden of purchasing a home is a necessity given that house prices are about 15% higher than this time last year. The price of an average home is now more than R800 000.
“As a result of the significant increases in property prices, government can reduce the transfer duty rates and still collect the same amount of taxes. Therefore we expect the trend of lighter property taxes to continue in the new budget.”
From March 1 2006, 5% transfer duty is payable of the value above R500 000 and the duty on transactions above R1-million is R25 000 plus 8% of the value above R1-million.
Geffen also warns that should transfer duty be reduced in the budget, buyers who have already signed an offer to purchase should not attempt to cancel their already-signed sale agreements to avoid paying higher transfer duty.
“We would advise against people doing this because it is illegal. Estate agents are obliged in terms of the Financial Intelligence Centre Act to report any tax evasion. And in terms of section 17A of the Transfer Duty Act, anyone attempting to evade paying transfer duty could face a penalty of double the duty payable.”