Today’s budget speech is unlikely to offer any relief to homebuyers, despite a number of industry players repeatedly calling on government to reduce transfer duty tariffs.

The last time that transfer duty was amended was in 2006 when the tax-exempt threshold was raised from R190k to R500k. Economists say the industry would probably have to wait at least another year for any further concessions, given how tax revenues earned from property sales have more than halved over the past two years.

Figures from Treasury show that in the 2006 tax year, at the height of the property boom, the income received by government from transfer duty came to a hefty R7,1bn. The general expectation is that transfer duty revenue for the current tax year has slumped to less than R3,5bn on the back of a sharp drop in sales volumes and declining house prices.

FNB Home Loans property strategist John Loos says chances are slim of government announcing any transfer duty relief this year given current revenue shortfalls. In fact, Loos says government is likely to look at ways to increase certain property-related tariffs to help bridge “recession-driven” revenue shortfalls.

Loos says transfer duty is no longer the only government tax affecting the affordability of homeownership. Rapidly rising municipal rates and taxes, as well as water and sewage costs, will become equally important cost considerations for homebuyers.

Jonny Novick, MD of Vered Estates, notes that South African homebuyers are paying far higher transfer duty tariffs than most of their overseas counterparts. In the UK, Germany and Switzerland homebuyers generally pay less than 4% of the purchase price in transfer duty. In contrast, South Africans buying a home priced between R500k and R1m are subject to transfer duty of 5% of the purchase price while properties of more than R1m are taxed at 8% of the purchase price plus an additional R25k.

That means someone looking to buy a house priced at R1,5m needs a cash reserve of R65k to pay for transfer duties, plus around R15k for the conveyancer’s legal fees. Novick says if a 10% cash deposit (R150k), as required by most banks, is added to the equation, it becomes clear how expensive it is to buy a house in the average middle class suburb in South Africa today. – Joan Muller

Readers' Comments Have a comment about this article? Email us now.

With respect to your article about transfer costs, let me state quite clearly that, high as these costs are, they are not even approaching the obscene amounts made by estate agencies for acting as the middle man between buyer and seller. Without adding any real value (other than bringing the two parties into contact) an estate agency will insist on anything between 5 and 7% of the selling price. Well, for a R5,000,000 house that figure comes to between R250,000 and R350,000 – that represents a very cool annual salary for a highly educated individual, which the estate agency glibly grabs for very little work.

What always surprises me is how meekly the public accept these extra-ordinary commission amounts levied by the estate agencies. And then they (and journalists) have the gall to complain about transfer fees. I wish there could be an smart investigative journalist who tracks one or two property sales, and compare the amount of work done for the reward received. What they will find is that, rand per hour, is must be the highest paid work by semi-skilled people in the country. You can pick just about any occupation and see how long does it take and how much actual labour is involved to make R300,000 – yet an estate agency will easily make that with one deal in a morning.

Of course, the real estate fraternity energetically argue that this is an over-simplification and, had it been that simple, they would all be rich. Well, they would be at 1% and 3% as well, but the proliferation of estate agencies in this country is proof of the fact that these exorbitant commissions keep a whole lot of these people very comfortably employed. If the commission is lower, fewer agencies would spring up like mushrooms, and the remaining agencies would make a very, very comfortable living.

For example, here in Hermanus a sea-front property has just gone onto the market for R12,95 million. At a rate of 7% the commission will be R906,000 – and that is just one property. What has the agency invested to achieve this huge reward? A few advertisements, a For Sale sign, and presumably a few phone calls. Total value? Perhaps R1,000. Not bad for a R900,000 return.

Truthfully, this practice is so bizarre that there should be a law against it, and a very strict one at that. I would support a commission structure of 3% up to a transaction value of R1,000,000 and thereafter a flat rate of 1%, with specified costs (such as travel, postage, etc) paid additionally and upon proof of expenditure.

If you REALLY want to bring property prices under control in this country, regulate the estate agencies by placing a legal restriction on the commission they are allowed to charge. Is it likely to happen? Unfortunately, I don’t think so – the mafia is too deeply entrenched to allow this.

Thanks for listening. – PJ van Zyl