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Budget speech will not provide any relief to residential property market

Category Residential Property Market News

Given the current economy and the resulting challenges facing the fiscus, we shouldn’t expect any relief for the residential property market when the Minister of Finance presents the budget on Wednesday, 25 February 2015.

The options for relief are limited to reducing the rate of transfer duty or raising the threshold above which transfer duty is paid, which is currently at R600 000.

The government raised R3.8 billion from transfer duty in the 2011/12 year, increasing to R4.2 billion in the 2012/13 financial year; a 10.5% increase.

With property prices having increased by approximately 6% in 2014, to avoid bracket creep, the threshold should be increased to R640 000 for home buyers to be no worse off, but this is unlikely to happen.

Property prices are expected to increase by about 7% in 2015, making this a small but efficient way to increase government finances.

It would not be surprising to see an increase in Capital Gains tax (CGT) rates, which is seen as a wealth tax on the upper end of the property market. The current threshold for a capital gain on residential property above which capital gains is payable, depending on certain terms and conditions, is R2 million.

This threshold probably won't change but that rate of CGT may well increase, especially as it relates to properties owned in a legal entity such as a trust or a company.

The current effective rate of CGT for individuals, companies and trusts is 13.3%, 18.6% and 26.7% respectively.

Of greater concern is any possible increase in taxes that has been reported to be under consideration by the government.

Disposable income to be spent or saved by consumers is critical to the short and long term recovery of the economy, and any direct or indirect increases in taxes such as an increase in VAT or a fuel levy will simply take away what little breathing room consumer have at the moment.

Source – H. Jawitz

 

 

Author: H. Jawitz

Submitted 25 Feb 15 / Views 4391

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