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Property Talk

Property Talk

Date: 2020-03-06

Good news for the property industry

The National Budget Speech attracted a lot of interest this year and South Africans and the International Investment Community look towards the government for action in addressing the main fiscal and macro-economic challenges facing the country.

Credit was extended to Eskom and SAA to service short-term debt and keep them going. Vat remains unchanged at 15% but the fuel levy will increase. Broad-based taxes on expenditure rather than income, economists will prefer than taxes on personal and corporate income.

For the property industry, the amendment to the transfer duty paid by the purchaser in a property transaction is a substantial change and good news for our sector. Transfer duty is high in South Africa and this directly inhibits property transactions.

It is however on a sliding scale, with six tiers of rates applicable to value bands of the selling price of the property. The first tier is up to R1m (previously R900,000) at which 0% transfer duty is payable. This is material as the average selling price in South Africa across all property transactions is just over R1m implying that the majority of South African property buyers will immediately and directly benefit from this change.

The next tier of R375,000 to R1,375,000 attracts only 3% transfer duty, and this is followed by two tiers of R550,000 to R1,925,000 and R2,475,000 that attract 6% and 8% in transfer duty respectfully.

The first big wack of transfer duty kicks in from R2,475,000 to R11,000,000 which is calculated at 11%. For all transactions over R11m, R937,750 in transfer duty is paid for the first R11m of the selling price and then 13% on every Rand over R11m.

For an R30m transaction in Zimbali, R3,496,000 in transfer duty alone is payable. This is however down from the R3,533,000 that would have been payable before the amendments in the transfer duty by the Finance Minister.

As an exercise, I analysed a range of transaction prices from R1,5m to R20m to see how the transfer duty differs under the new thresholds and the extent of the savings a purchaser can anticipate.

Had you known this just before the budget speech you may have delayed your transaction to later than 1st March 2020 to take advantage of the reduction. For a transaction value of R1,5m, the new transfer duty payable is R18,750, which is -26% lower than the R25,500 that would have been payable before.

As we move up the price spectrum the relative relief decreases but the change is substantial enough to make a difference to purchasers and ensure they have a bit more money to spend on upgrades or movables once taking occupation of their new home.

At a transaction value of R2,000,000, the new transfer duty is R50,250 which is down from the R60,500 previously or -17% less. At a selling price of R3,000,000, your transfer duty is now R146,000 or -10% down on the R163,000 previously payable.

At R4,000,000 you feel the higher rate and will be paying R256,000 now or -6% less than the R273,000 before. At R5,000,000 you are still getting an R17,000 saving on the R366,000 payable, although this is now only -4% below the R383,000 previously payable.

The changes made to the transfer duty are therefore substantial and significant far beyond the increase to R1m for the first tier and will impact on the amount of disposable income available to home buyers.