Whether you’re buying property for business or to live in, you’re going to pay taxes at various stages of ownership.
 
“Owners - especially first-time buyers - need to be aware of their tax obligations and plan their property investments accordingly,” says Renier Kriek, Managing Director at Sentinel Homes.
 
Unfortunately, tax is often overlooked, so here’s an overview of what you need to know.
 
When you buy
When you buy a property, you will either pay VAT or transfer duty, but never both.
 
VAT is charged when a VAT-registered business sells a property, typically as a new residential development. Transfer duty, on the other hand, is levied when buying an existing residential property from its owner.
 
Importantly, transfer duty cannot usually be financed through a home loan, so you’ll have to come up with the money yourself. On higher priced properties, transfer duty can run into the hundreds of thousands.
 
“With a new property, VAT is included in the purchase price, so it is already covered by your loan,” says Kriek. “For first-time buyers, a new property can be much easier on their pockets.”
 
It’s also important, when shopping for property, to keep in mind that new properties are cheaper at the same advertised price than their second-hand competitors, due to the impact of the transfer duty.
 
For as long as you own
Once you take ownership of your property, you’ll immediately start paying municipal taxes. Whereas transfer duty and VAT are paid over to SARS, municipal taxes are used to fund city services, infrastructure and salaries.
 
“When planning to buy, you should consider how this tax will impact your monthly cash flow,” says Kriek. “We have, startlingly, had several clients who were surprised to learn that they will receive a monthly tax bill on their new home. The municipal tax is in addition to consumption charges for water and electricity and expenses like levies payable to the body corporate or homeowners’ association.”
 
When you sell
If you sell your property, you’ll pay capital gains tax (CGT). This is where things get a bit complicated.
 
CGT is calculated on the difference between what you paid for a property and what you’re selling it for. Individuals are taxed on 40% of this profit at their marginal tax rate when it comes time to declare their annual income to SARS.
 
However, if this is your primary residence (i.e. your home), the first R2 million of your profit is tax free.
There are a few catches though. For example, perhaps you initially rented out the property but then moved in to live there permanently before selling it. In that case, the R2 million allowance must be divided proportionately between the period you rented it out and the period you lived there. And you won’t be able to claim that first portion as tax free.
 
Another instance is where you claimed a deduction for a part of the property used for business, such as a home office. You will also have to subtract this part from the allowance.
 
Trusts and companies, on the other hand, pay tax on 80% of their capital gains and don’t benefit from a primary residence allowance. This seems, on the face, to provide valuable incentives not to own your primary residence through an entity. However, the estate duty implication and the effect on the cost of administering your estate should also play into the consideration of the correct structure.
 
Secondary properties, such as a holiday home, also don’t benefit, even if you do reside there occasionally.
 
When you pass
When you die, you will have to pay estate duty on the value of your estate above R3.5 million, rendered unto SARS by your estate administrator.
 
Any property disposed of at this time will attract CGT, and the same exclusion allowance is applied to your primary residence.
 
If your estate cannot cover your debt or tax obligations, your property may be sold to raise the necessary cash.
 
There are several methods to protect your property against such a loss. You could take out extra life insurance to cover the tax liability. Or, you could sell your property to an estate planning vehicle, such as a trust or a company, at the earliest opportunity, in order to cap your eventual tax liability.
 
Although you’ll pay CGT on the profit from that sale, any future property value increases will be on the balance sheet of the entity, not your own, thereby escaping an otherwise increasing estate tax liability. And since trusts and companies don’t die, you can avoid CGT in perpetuity when you do - to the advantage of your beneficiaries, of course.
 
When you earn income
If you earn income from any source other than employment, you must pay provisional tax. This includes income from renting out your property.
 
Provisional tax requires that you estimate your non-employment earnings for the year and pay tax on half of those earnings at the end of August, with the balance due at the end of February in that tax year. When you declare your total annual income, any provisional tax paid during the year is deducted from your assessed tax.
 
“Just estimating what you’ll earn in the coming year can be stressful and calls for the services of a professional tax advisor or accountant,” says Kriek.
 
Starting out right
The sheer complexity of tax on property and the methods of managing that obligation cannot be covered fully in a single article.
 
For this reason, it is essential to carefully plan your property purchases around both financing and tax. “Especially for high value property investments, such as total property values exceeding R2 million, you definitely need to engage the services of estate management and tax planning professionals,” says Kriek.
 
ENDS

MEDIA CONTACT: Stephné du Toit, [email protected], 084 587 9933, www.atthatpoint.co.za
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes

The significant decline in the number of people who can keep their mortgage accounts up to date clearly illustrates the level of financial distress consumers are currently experiencing.
 
Historically around 92% of all mortgage accounts were up to date, but it has been dropping quite dramatically in recent times. The latest available figure shows it is down to 88% in the last quarter of 2023. That means home loan accounts with arrears have increased by about 50% recently, and it happened in the relatively short time span of 18 months to December 2023.
 
Globally inflation has been quite stubborn and interest rates remain high as a result. In South Africa the repurchase rate (repo rate) of the South African Reserve Bank reached its highest level in 15 years, says Renier Kriek, managing director of Sentinel Homes. This means the prime rate, used to price home loans and other consumer debt like car loans and credit cards, is elevated.
 
High inflation, and the high interest rate response, has been caused by a confluence of factors including the hangover from previous quantitative easing, supply-chain bottlenecks during the Covid-19 pandemic, the Russia-Ukraine war and the recent conflict in the Middle East.
 
Despite earlier predictions that the high interest rate cycle could turn around in May this year it is now only expected next year due to high inflation proving stickier than anticipated.
 
“Being unable to afford your home loan instalment is not a position anyone wants to find themselves in. Steer your own boat rather than leaving it to the vagaries of the foreclosure process. Not taking control of the situation can be financially disastrous,” advises Kriek.
 
Prevention better than cure
He urges homeowners to come to an agreement with their home loan credit provider before they miss the first payment. Stick to the arrangement. Do not over-promise and under-deliver.
 
“If you couldn’t make an arrangement in advance of missing a payment, and you’ve already fallen into arrears, pay something toward the debt immediately. Just pay anything you can and keep on doing that as a launchpad for negotiations with your home financier.” Accounts that are receiving payments are less likely to face hand-over and foreclosure than accounts receiving no payments.
 
“Do not let unreasonable hope be the enemy of your future financial well-being,” he adds. If the cause of your financial distress is unlikely abate within a reasonable time, call it a day and list the property for sale with an estate agent. Be realistic and pro-active.
 
He recommends that distressed homeowners market their property before the home financier’s attorneys come knocking, ensuring a better return on the sale. “You will also avoid a slew of additional costs once the bank starts with the foreclosure process. These only serve to make your poorer, adding insult to injury.”
 
Some people, particularly men in Kriek’s experience, tend to be too proud to discuss financial matters with family and friends. Many families are caught by surprise when there is suddenly talk about foreclosure, having missed the opportunity to assist along the road. “Reach out to the people you love and trust, there may be a lifeline from someone who will understand your circumstances and can assess the situation with much higher fidelity than a remote credit provider.”
 
Forbearance before foreclosure
Credit providers may be willing to assist a distressed homeowner by offering a payment holiday or by granting an interest-only period. It may also be possible to spread any existing arrears over a few months ‘repayments or extending the term of loan.  This is especially true when the bar to payment is temporary, such as hospitalization or sudden retrenchment
 
It is also important for consumers not to fall prey to over-enthusiastic debt counsellors. Many unscrupulous operators in that industry market debt counselling as a cure for all debt related ills. Entering debt counselling may not, in fact, save your home, but may still have a potentially disastrous effect on your future finances. For instance, debt review stops you from taking any new debt for several years while the debt review is completed.
 
Kriek says there is a general misconception that home loans are “money-spinners” for home loan companies such as the banks. It only takes a couple of missed payments for home loan provider to be “under water” with a home loan. Do not labour under the misapprehension that you are doing the bank a favour by having a home loan with them – the home loan itself is not a very lucrative proposition.
 
Nevertheless, the fixed costs of originating new home loans are quite high. Banks, home loan or credit providers generally prefer to rehabilitate existing customers rather than terminating the agreement, foreclosing, and then having to originate new debt.
 
Take all opportunities to steer your own boat off the foreclosure rocks.  Your finances cannot afford to be shipwrecked there.
 
ENDS

 
MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes

The single woman’s guide to buying their first home
Almost 60% of South African homes are owned or co-owned by women, and women are increasingly buying property without a spouse or partner.

“Many will be first-time buyers who are hesitant to commit because they feel they are unable to afford such an investment,” says Renier Kriek, Managing Director at Sentinel Homes.

As someone who deals with single or unmarried property seekers regularly, Kriek offers some good advice to help you find the best way to finance your purchase.

Rise of the female homeowner
As modern family dynamics change, one demographic indicates that more than 40% of South African children now live with their mother only. This is greater than the number residing with both parents or another related adult.

“Traditionally,it is believed that homeownership is one way to create the stable and secure setting that is conducive to childrearing. This cultural attitude, coupled with demographic changes, may explain the surge in women buyers,” says Kriek.

Yet, buying a property on a sole income can be daunting for anyone, regardless of gender, especially since property prices have risen faster than salaries over the past 70 years.

However, Kriek warns that once the practical results of the election have become clear and the long-anticipated interest rates cut has arrived, pent up demand will surely unleash a buying spree that sends property prices skyrocketing. Buying now, before the market rises, is probably preferable to buy now, especially for those buyers who must stand on their toes to buy a property in the first place, such as single men and women who only have the benefit of one income.

“With the current buyer’s market, it is the ideal time to invest in a home that’s still affordable,” he says.

Buying a home on a solo budget
To find the best property, you first need to decide how you will pay for it. Here are some great tips to consider:
Your primary concern is how much you can get together for your investment. This starts with an honest assessment of your financial position and credit record, since you will likely need to apply for a bond, which may require a substantial deposit.

Then, do your research to discover alternative financing solutions. For example, the government’s First Home Finance subsidy offers qualifying applicants free financing that can be combined with other housing products, like mortgage loans. The options are out there, you just need to find them.

However, don’t be tempted by shady loans that make getting into debt easy but whose crushing rates will eventually leave you penniless - and maybe even homeless.

Next, implement sensible lifestyle changes. Now is a good time to start paying off lesser debts to free up disposable income and improve your credit rating. Also ask yourself which expenses you’re willing to live without, like your Netflix subscription or weekend takeaways. It all adds up.

Ask your employer if they provide assistance with property purchases. For instance, some banks may offer certain staff home loans with low or no deposit, and some employers may offer formal or informal programs of assistance to those who wish to buy.

Most importantly, be aware that every property comes with initial and monthly costs, some obvious and some hidden. Upfront, you’ll face transfer and registration fees, and transfer duty. Then, there are the ongoing and adhoc costs, such municipal costs, sectional title levies and consumption costs. You are also responsible for home maintenance and repairs, and other infrequent expenses that don’t normally affect renters. Make sure you work these into your calculations.

Getting value from property
Now, consider the best type of property to buy. Most single people prefer a lock-up-and-go home, like a property in a sectional title complex. Currently, sectional titles make up more than half of the properties in the country due to their excellent value-for-money proposition.

For instance, they allow you to enjoy many of the benefits of a free-standing property, albeit in a communal setting. The cost of security, gardening, property maintenance, a swimming pool and entertainment areas, and more, is shared among owners, making these amenities affordable and accessible to each.

“Given the demand, this is also the easiest property to sell when your lifestyle needs change, again making it the best for a first-time owner,” says Kriek.

If your employer is open to you working remotely, or you can run your own business remotely, you may find better value in rural areas or the countryside. In such regions, your bond might be cheaper than your current rental, so keep an open mind. 

Also, determine if the property could somehow pay for itself. A granny flat or spare room that can be rented out for additional income certainly helps to ease bond repayments.

Lastly, buy with the end in mind. One day, you may want to sell your starter home for the highest price you can get. To ensure its value keeps pace with the market, look at the basics most buyers demand, such as its proximity to schools, shops, hospitals, daycare and similar amenities. Also, try not to buy property in declining areas – low prices may in fact be a value trap.

The rewards of due diligence
As a single woman, who may also be a mother, your first home might seem like a distant dream, but it could be more affordable than you think.

“As long as you are willing to do your homework, you might be surprised at what is possible and how soon you can have what you want,” says Kriek.

ENDS
 
MEDIA CONTACT: Rosa-Mari Le Roux, [email protected], 060 995 6277, www.atthatpoint.co.za 
 
For more information on Sentinel Homes please visit:
Website: www.sentinelhomes.co.za
Facebook: Sentinel Homes