Impact of transfer duties
2006-03-09
THE full benefit of the reduction - or in some cases, elimination - of transfer duties on property buys promulgated in the recent budget, has not yet been appreciated by the general public.
But it will be far-reaching and will increase home ownership in the sub-R1 million bracket significantly, says Bill Rawson, President of the Institute of Estate Agents of SA.
However, one group that could suffer from the changes, said Rawson, is those developers who have planned housing projects in the sub-R1 million bracket.
“They will still have to pay the 14% VAT and this could well make their units uncompetitive in a market where the purchasers of second-hand homes now pay little or no duty.”
Previously, he said, because the developer was paying VAT, the buyers did not have to pay transfer duty - which was very appealing to the cashstrapped investor - but this huge advantage has fallen away with the reduced transfer duties announced in the new Budget.
“Two developers known to me are putting their projects on hold until they see the new market trends a little clearer,” said Rawson.
In his budget speech, the Minister of Finance announced that from 1 March all homes costing below R500 000 would be exempt from transfer tax (previously this applied only to homes costing less than R190 000) while homes priced at or below R1 million will now be taxed at lower rates varying from 0,5% to 2,5% of their value.
The new rulings, added Rawson, have also benefited “artificial legal persons”, companies, closed corporations and trusts. These now pay 2% less (8% rather than 10%) on transfer duty.
This, says Rawson, is likely to encourage investment in vacant land and property and could lead to another revival in syndication as was experienced four years ago.
“It should, however, be realised that by international standards, the 8% transfer tax here is still high - we look forward to further reduction.”
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