Budget reaction - Absa says price growth may be above 12%

Absa views yesterday’s 2006 National Budget, delivered by the Minister of Finance, Trevor Manuel, in Parliament as stimulatory for the property market. 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, the bank notes in a February 16 media release, 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.

“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. 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.
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