TRANSFER DUTY: No relief for home buyers
Transfer duty rates have not been changed, partly because revenue from property sales was lower than expected
Unsurprisingly, no adjustment to transfer duty rates was announced in this year’s budget.
It follows a drop in the revenue that government earns from property sales: transfer duty collection for the 2017/2018 tax year came in at R7.8bn, about R620m less than the R8.42bn treasury had hoped to earn.
The transfer duty shortfall can be attributed largely to the relief that was offered to entry-level home buyers when government raised the transfer duty exemption threshold last year from R750,000 to R900,000.
Though buyers in the sub-R900,000 bracket were the biggest winners from the adjustments introduced in the 2017 budget, anyone who bought a property priced at R1.25m or more benefited too. From March 1 last year they effectively saved R4,500 in transfer duty.
Transfer duty revenue was hit not only by the higher exemption threshold but by a dip in housing sales. Industry players say market sentiment was dented last year by ongoing political uncertainty, credit rating agency downgrades and SA’s dismal economic growth rate of only around 1%.
In addition, softer sales volumes led to lower house price growth. The FNB house price index recorded average growth of only 3.7% last year, down from a multiyear high of 7% in 2014.
Finance minister Malusi Gigaba expects revenue collection from transfer duties to recover by 7% to R8.34bn in 2018/2019. Some may argue this estimate is overoptimistic, particularly since transfer duty rates did not increase.
Furthermore, there has been no adjustment to capital gains tax in this year’s budget, which means there won’t be a rise in revenue on that front either.
However, FNB household and property sector strategist John Loos says housing activity may well pick up over the next 12 months on the back of improved sentiment, thanks to SA’s political transition.
Loos notes that leading economic indicators are already pointing towards a strengthening economy.
"It seems plausible that 2018 could be a mildly stronger year for all housing market segments,’’ he says.
Jacques du Toit, senior property economist at Absa Home Loans, echoes a similar sentiment.
He says that while the increase in Vat, marginal personal income tax relief and increased fuel levies will have a negative effect on household finances, lower inflation and the stronger rand could lead to lower interest rates, which could provide much-needed support for the housing market.
Herschel Jawitz, CEO of Jawitz Properties, agrees that while the budget provides no real impetus for a residential property market recovery, improved consumer confidence is likely to support property prices and demand over the next 12 months. But the increase in estate duty on estates above R30m may lower demand in the luxury market, he says.