Transfer Duty

Category Property News

Transfer Duty - The Impact on Property Market
Report Compiled On Behalf Of Lightstone - Hayley Ivins

With February traditionally being the month of fiscal focus and the Minister of Finance’s budget speech, and whilst this is not something that is adjusted regularly, we thought a study of the impact of amendments to transfer duty in respective of property sales would make for an interesting topic for this month’s newsletter.

And we weren’t disappointed by the results …

Last year, effective 23 February 2011, Mr Pravin Gordhan, raised the transfer duty value (the price of the property exempt from transfer duty payment) by R100 000 to R600 000. The 2011 adjustment also changed the ruling to allow juristic entities, i.e. trusts, CC’s and Pty Ltds to also benefit from the R600 000 transfer duty allowance.

In order to understand whether these adjustments had any impact on sales in the property market we examined the frequency of property sales in the R500 000 to R600 000 price bracket in the 6 month period pre and post the date of implementation, being 23 February 2011. As far as possible we excluded those transactions that were directly from property developers, as they do not carry transfer duty costs, as well as portions of title shares. We also looked at sales to natural persons and juristic entities independently.

Sales increase by 8% for natural persons
The results indicate that in the case of natural persons, that is persons buying property in their personal capacity registered against their ID number at the Deed’s Office, the number of sales in the R500 000 to R600 000 band in the 6 month period prior to the transfer duty amendment was 6 378 and this rose to 6 879 in the 6 months post the adjustment, indicating an 8% increase.

Juristic entities take advantage of transfer duty exemption
In the case of juristic entities, we identified a 36% lift in property sales between the R500 000 and R600 000 band in the 6 month period post the announcement, from 635 to 866 sales, indicating that the adjustment served as an impetus for purchases in the names of juristic entities, in the price band exempt of transfer duty.

Whilst we do not anticipate a further adjustment to the transfer duty value at next week's budge speech (22 February 2012), the results of our research indicates that an increase in the minimum value for transfer duty appears to stimulate the appetite of buyers in the value band exempt from transfer costs.