What effect will the 2015 budget have on the property market?
We all knew that the 2015 budget was going to be a difficult one. The Finance Minister is running out of space to manoeuvre as we see ever increasing pressure for greater revenue to cover the cost of much needed infrastructure spend, but an already heavily burdened and limited tax base.
The 2015 budget directly affects the cost of buying property with alterations to the Transfer duties on properties. We see a reduction in transfer duties on properties below R2.6m, but escalating duties on properties over this amount, increasing proportionally with price. The more expensive the property the greater the increase in transfer duties. (See below chart and examples.)
It’s not only transfer duties that affect the property market, every aspect of the budget affects all of us in some way which in turn affects our spending power and our ability to afford property.
South Africa is a developing country with many unique issues when compared to more developed nations, we simply don’t have the same base to build from. The government is stuck between a rock and a hard place requiring strong economic growth to improve employment and reduce poverty, which will in turn increase the size of the taxpayer base and generate more revenue, but is not in a position to encourage such growth at this time, thanks primarily to power constraints and many other infrastructure issues.
South Africa needs to dramatically improve it’s infrastructure at a cost of many Billions, even Trillions, of Rand's over the next few years, but also needs to be very careful how it raises this money, South Africa has a limited number of active taxpayers, despite claimed figures of 14 million registered taxpayers, apparently only 3.3 million individuals contribute 99% of the overall personal taxation, with the others falling below, or at the lower end of the taxable income levels.
Despite this we have seen a marginal increase in the tax rate on those who earn above R 181 900.00 per annum.
The government further needs to care for the poor of the country with R 150 Billion being allocated by 2018 to support 17.5 Million people on various forms of social grants, this expenditure, although necessary in the short term, further reduces our ability to invest in much needed infrastructure that would improve employment and reduce poverty in the long run.
We have seen an increase of 80.5c per litre on fuel, a combined fuel levy and Road Accident Fund increase. Add to this the 96c a litre increase just announced by the Energy Department as a result of rising oil prices and we will soon see the petrol price back where it was a few months ago.
Of course we see the ever present increase in Sin taxes, tobacco and alcohol. However it’s not all doom and gloom, we do see a considerable incentive for micro business in the guise of turnover tax reductions for business with turnover of less than R 1 million per year, but this has been criticised for encouraging growing business’s to rather stay small and not strive to grow as the burden above this amount becomes considerably more onerous.
In a nut shell most of us will probably find ourselves with a little less disposable income, but let’s take a more detailed look at the impact the latest Transfer Duties will have in the direct cost of buying a home.
Let’s investigate the actual Rand difference at various amounts.
A R 750 000 house last year would have cost R 4500 in Transfer duties, this year it will be R 0.
A R1.5m house last year would have cost R 37 000, this year it will be R 30 000.
A R3.0m house last year would have cost R 157 000, this year it will be R 167 500.
A R5.0m house last year would have cost R 317 000, this year it will be R 387 500.
A R10.0m house last year would have cost R 717 000, this year it will be R 937 000.
A R20.0m house last year would have cost R1.517m, this year it will be R2.0375m
Although the shifting of the Value tiers, for inflation, has resulted in reduced Transfer duties at the lower end of the market, the increase in percentages and the addition of the 5th tier (11%) compared to last year has resulted in the higher end of the market experiencing substantial increases in Transfer duties, for example a R10m home has seen an increase of almost 31% and a R20m home over 34% in Transfer Duties. What effect this may have on the various price range of properties remains to be seen, will we still see robust foreign investment in the higher end of the market or will these increased duties and uncertainty around foreign property ownership laws scare off potential foreign property buyers, will the seller have to drop his asking price or will the buyer be asked to cover the cost. One thing is for sure, it’s going to make it just that little bit more difficult for the foreseeable future to sell property in the higher price ranges to locals and foreigners alike.