Ricochet News

New homes lose their no-tax luster

JULY 13, 2017
New homes lose their no-tax luster

Buying a newly-built home has many attractions, but for most first-time homebuyers, saving tax is no longer one of them.

For many years, one of the biggest incentives to buy off-plan or into newly completed developments has been the fact that the “price you see is the price you pay”, with VAT being built into the sale price and buyers thus not being required to find additional cash to cover transfer duty.

“However, with the transfer duty threshold currently at R900 000, that is simply no longer true for many first-time buyers, who are currently paying an average purchase price of around R750 000 to R800 000. The truth is that there is now no tax at all payable on pre-owned properties costing less than R900 000, but still 14% payable on newly-built homes in this price bracket.

In other words, those buying the new homes will effectively be getting 14% less floorspace for their money than those who buy pre-owned homes – and will usually still have to come up with some cash to cover the additional transaction costs such as legal fees and bond registration fees, which are the same for both types of property.

Meanwhile, due to the fact that building costs continue to increase at more than twice the rate of inflation, newly-built homes are currently at least 30% more expensive than pre-owned homes of the same size. Looked at another way, newly-built homes are likely to be at least 30% smaller than pre-owned homes at the same price point.

This means that those buying for less than R900 000 could be getting as much as 44% more floorspace when they buy a pre-owned home instead of a newly-built one – and we believe this has much to do with the current resurgence of interest in many of the older and lower-priced suburbs in our cities, especially if they also happen to be close to good schools, shops and workplaces, and well-served by public transport.

There are of course many advantages to buying a newly-built home, not the least of them being the fact that they are usually much lower maintenance properties, and often have better security provisions. Modern fittings and finishes are also a big attraction.

However, we are seeing huge interest among young buyers in older city centre apartments that are inevitably more spacious than newly-developed ones, and especially attractive if they have recently been renovated or revamped and are in a city improvement district with good security and an active nightlife.

Similarly, pre-owned townhouses and smaller houses in the older, inner suburbs are also in high demand, especially among young families who want to have everything they need close by and prefer to use public transport to get to work rather than sit in traffic every day.

“Many of these buyers are also happy to buy homes that are in less than perfect condition and renovate them over time, in return for a lower price and a convenient location. They are bringing a new energy to these areas and are often also prepared to get involved in community efforts to improve and secure their neighbourhoods.

“We see this as a healthy, positive trend that will help to reverse the decay that has taken place in many inner suburbs, and to preserve and increase the value of the housing stock in those areas, while also encouraging the establishment or re-establishment of many small businesses and the creation of new employment opportunities.”