2009/02/10

The transfer duty threshold should be bumped up to R1m in this year's budget to make home buying easier for thousands of South Africans that have effectively been shut out of the market because of banks' stringent lending criteria.

That's according to South Africa's biggest mortgage originator, ooba.

The current threshold for transfer duty is R500k.

Speaking ahead of this year's budget announcement, Saul Geffen, chief executive of ooba (formerly MortgageSA), said people wanting to buy a home while the market is soft are facing tough times.

Geffen notes that banks' recent tightening up of lending has compounded the troubles in the housing market. "Banks have introduced much stricter lending criteria and fewer buyers are qualifying for the full amount of the loan they apply for."

When banks do grant loans, they are demanding deposits of up to 30% depending on the size of loan. On top of the deposit, buyers must then pay transfer duty (a tax) which means buyers need to have a lot of cash on hand.

"Lowering the transfer duty threshold would make it easier for consumers, particularly first-time buyers, to enter the property market."

Geffen noted that Finance Minister Trevor Manual increased the threshold at which transfer duty on fixed property becomes payable from R190k to R500k in 2006 but that three years on, it needed to be raised again.

"In early 2006, the average property price in South Africa was around R700k. Now it is just shy of R1m so the threshold also needs to recognise this bracket creep effect and ease the tax burden on South Africans at a time they need it most."

Currently, there is no transfer duty payable on property purchases under of R500k while 5% transfer duty is payable of the value above R500k. The duty on transactions above R1m is R25k plus 8% of the value above R1m.

Geffen also said that he expected a lot more buyers to come into the market in 2009, especially later this year, as interest rates continued to drop. He also noted that lower inflation would have a positive impact on people's wallets.

"It looks as if 2010 will be a far better year for South African property." – I-Net Bridge