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The Budget And Property
By Jacques du Toit, Senior Economist, ABSA Bank
16 February 2006
The 2006 National Budget, delivered by the Minister of Finance, Trevor Manuel, in Parliament
on 15 February, can be regarded as stimulatory for the property market as transfer
duty on property was significantly cut, while the capital gains tax exemption on a primary
residence was lifted from R1 million to R1,5 million.
The residential property market performed strongly during 2000-2005, with nominal house
prices increasing by an average of about 20% per annum over this period. Against this
background, transfer duty on property was reduced for the fifth consecutive year in the
Budget. This year around, the cut in transfer duty was substantial across the board (see
table below on impact of lower transfer duty). This measure, together with the increase in
the exemption on a primary residence, will give immense support to the demand for property,
residential as well as commercial. Against this background, average house price
growth may well be above 12% this year.
As from 1 March 2006, no transfer duty will be payable on a property valued at R500 000
or less (see table below on rates of transfer duty). The maximum value of a property exempted
from transfer duty was R100 000 in 2002/03; R140 000 in 2003/04; R150 000 in
2004/05; and R190 000 in 2005/06. The adjustment to transfer duty on property will cost
the fiscus R4,5 billion in lost revenue in 2006/07.
The substantial lowering of transfer duty on property is an effort by the government to
make home-ownership more affordable, especially for the lower-income groups, taking
into account the strong increase in property prices in recent years and a bigger focus on
housing delivery at the bottom-end of the market. This, in conjunction with the government’s
housing subsidy for low-income, first-time homebuyers, will support the lower-end
of the housing market.
The relaxation of exchange controls on individuals where the amount that can be taken
abroad is increased from R750 000 to R2 million per person, may divert some investment
funds away from property, especially at a time when the currency is relatively strong. However,
this is unlikely to be the case taken into account current international and domestic
economic and investment conditions and prospects.
| Transfer Duty on Property 2006/07 |
| Property value
| Rates of transfer duty
|
| R0 - R500 000 |
0% |
| R500 001 - R1 000 000 |
5% on the value above R500 000 |
| R1 000 001 and above |
R25 000 plus 8% on the value above R1 000 000 |
| Impact of lower transfer duty on property (2006/07) |
| Property value
| Transfer Duty 05/06
| Transfer duty in 2006/07
|
| Rand
| Reduction from 2005/06
| % of property value
|
| Rand
| %
|
| R 500 000 | R 20 600 | R 0 | R 20 600 | 100.0 | 0.0 |
| R 600 000 | R 28 600 | R 5 000 | R 23 600 | 82.5 | 0.8 |
| R 700 000 | R 36 600 | R 10 000 | R 26 600 | 72.7 | 1.4 |
| R 800 000 | R 44 600 | R 15 000 | R 29 600 | 66.4 | 1.9 |
| R 900 000 | R 52 600 | R 20 000 | R 32 600 | 62.0 | 2.2 |
| R 1 000 000 | R 60 600 | R 25 000 | R 35 600 | 58.7 | 2.5 |
| R 1 500 000 | R 100 600 | R 65 000 | R 35 600 | 35.4 | 4.3 |
| R 2 000 000 | R 140 600 | R 105 000 | R 35 600 | 25.3 | 5.3 |
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