Home buyers and builders need a VAT break

A VAT concession on newly-built flats and townhouses would level the playing field for young people who want to become homeowners and might also give the labour-intensive residential construction industry a boost.
So says Richard Gray, CEO of the Harcourts Real Estate group, who notes that some 40% of housing demand at the moment is coming from young first-time buyers who favour flats and townhouses, and that builders and developers are responding to this demand by planning and building more of these homes.
“According to StatsSA, the volume of plans passed for new flats and townhouses this year is 43,7% up on last year, and the construction phase of new housing has already increased by 8,6%, even though it is difficult at this stage of the market for developers to compete on price with pre-owned units.”
Indeed, according to the most recent Absa Housing Review, the current average difference in price between a newly-built home and a similar pre-owned one is still around 33%, and given the ongoing above-inflation increases in building costs, the only way for developers to stay competitive is to make the newly-built units smaller, he says.
“In other words, young buyers of these units are getting less home for their money than they would if they bought pre-owned units – although many are content to accept this because new homes come with construction guarantees, typically need much less maintenance in the critical first few years of home ownership and often have better security than pre-owned homes.”
However, Gray says, all buyers of new properties – including many people entering the market for the first time – are being penalized in terms of the relative amount of tax they have to pay for home ownership.
“Our research shows that home prices being paid by first-time buyers generally range from around R675 000 to R750 000. And the transfer duty (tax) payable on pre-owned homes in this bracket ranges from R2250 to R4500.
“But transfer duty is not payable on newly-built homes. Instead, VAT of 14% is usually included in the purchase price, which means that on a unit with a purchase price of R675 000, a whopping R83 000 is the tax component which the developer must hand over to SARS.”
This hardly seems fair, he says, and it obviously penalizes developers too because the rate of VAT they have to charge again influences their competitiveness in the marketplace.
“For example, if a concessionary rate of VAT of say, 5%, was applied to first-time buyers of newly-built properties, the developer could lower the price of a R675 000 unit to around R625 000 without any loss of profit. And as an added bonus, this would make it easier for potential buyers to qualify for bonds to buy their homes.
“In short, a VAT concession on new housing would boost both home ownership and entrepreneurial endeavour in the home building industry.”

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

  • Tito Xulu - posted 27 Sep 2013 09:27 AM                                    

    this makes sense to drop taxation because it affects price,as more and more people want new properties and the bank lending is strict.

Latest Property News
  • 23 Feb 2018
    RE/MAX Property Associates’ Table View Office, which services property buyers and sellers along the Table Bay coastline and surrounds, has recently sold a home in Woodbridge Island for R11 million – the highest price paid for any home in the sought-after security complex.
  • 23 Feb 2018
    Choosing to invest in an overseas property can be daunting. But as more and more investors recognise the value of a diversified portfolio that includes property outside of their own country of residence, international property investment is growing in popularity.
  • 23 Feb 2018
    The positive change in South Africa’s political landscape is paving the way for an upswing in the local property market.
  • 22 Feb 2018
    An excellent credit score is one of the most priceless assets a potential home buyer can have. This tool has the power to secure favorable mortgage and refinancing rate, influencing everything from the size of the loan repayment to the interest rate on the home loan.
  • 22 Feb 2018
    What do you do if you love your home’s location and the area, but the home no longer fits your growing family’s needs? Do you stay and renovate your existing home or find a home that meets your developing criteria?
  • 22 Feb 2018
    While every owner wants to sell their property at the best possible price, overpricing a home can be the kiss of death for a sale.
  • 21 Feb 2018
    Given the hand they were dealt, government has performed a delicate balancing act which it is hoped will serve to reignite confidence in investment in South Africa, regain our global credibility and satisfy the credit ratings agencies, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
  • 21 Feb 2018
    The real estate mantra, ‘location, location, location’ remains a strong market influence regardless of the prevailing economy, with suburbs like Rondebosch enjoying the buffering benefit of being ideally situated.
Subscribe to the MyProperty Newsletter

Last Name  
Email Address  
Email Frequency
Share this Page

For Sale Property
Rental Property
More Options
Connect with us