APART from possible further changes to the exemption threshold on property transfer duty, the market is not expecting any major surprises from Finance Minister Trevor Manuel when he delivers his budget speech today.
But some property market commentators say they would like to see further relaxation of exchange controls and tax relief for first-time home owners.
Neville Schaefer, CEO of national residential property managers Trafalgar, says there is not much more government’s budget can do for the property market except “perhaps adjust transfer duty”.
“The only thing I can think of is that he will raise the threshold for transfer duties like he did last year,” says Schaefer.
Last year, the sharp rise in residential property prices in recent years prompted the national treasury to significantly increase the exemption threshold for transfer duty on property transactions. Manuel removed transfer duty from houses costing less than R500000 in an effort to encourage the secondary housing market and promote home ownership in SA.
In the 2005 budget, the national treasury responded to the steep rise in property prices by raising the threshold for exemption of transfer duty from R150000 to R190000.
But with residential property market prices continuing to increase there are expectations of another increase in this exemption threshold.
Property economist Francois Viruly, of Viruly Consulting, says while last year the market saw a “significant move” by government on the issue of transfer duties, it was important to bear in mind that the lower end of the property market was still showing a “very strong performance”.
Viruly says there is scope to shift the exemption threshold from R500000. “We should be looking at a threshold of R600000 to R700000.”
He says it is more important to have tax relief for new entrants to the property market by, for example, providing tax deductions on mortgage payments for properties below R1m.
Viruly says this kind of situation exists in a number of other countries.
Another important move that could assist the property market would be a further relaxation in exchange controls. “Property, especially listed property funds, are going to be increasingly looking for investment opportunities outside South Africa’s borders. Hence, over time this will require a significant move towards further exchange control reform.”
Viruly says he would like to see more exchange control relaxation in this year’s budget to make it increasingly possible for listed property companies and other players to branch off overseas.
“Unless South African funds can start growing through international acquisitions it will be difficult for us to attract foreign investment to the South African listed property sector.”
Viruly says that as far as the urban development zone tax incentives are concerned, there is also scope for government to extend this tax relief to companies that decide to rent in central business districts. As it stands, the tax incentives are for property owners and developers.
Property economist Erwin Rode, of Rode & Associates, says the “only item on my wish list would be the abolition of transfer duty or a step in that direction”.
“Transfer duty makes trading in property expensive and obviously the more illiquid the market, the less efficient the market. In order to improve the efficiency of the house market, the abolition of transfer duty would help,” says Rode.
First National Bank property strategist John Loos says he is not expecting this year’s budget to be “as positive for property in the direct sense of the word. The 2006 transfer duty relief came along with significant individual income tax relief, and it must be noted that this relief came in an election year,” says Loos.