As South Africa contemplates a 2% increase in VAT, potential home buyers could see significant changes in the costs associated with purchasing properties.
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Michael-Anne Abrahams
As South Africa contemplates a 2% increase in VAT, potential home buyers could see significant changes in the costs associated with purchasing properties, especially new homes. The proposed tax adjustment would shift the financial landscape for both new constructions and existing home transactions, as well as the accompanying services.
Newly Built Homes
For new constructions sold by developers, VAT is incorporated into the purchase price. With the current VAT at 15%, a new home priced at R1 million includes R150 000 in VAT. If the rate climbs to 17%, the VAT will increase to R170 000, adding an additional R20 000 to the overall cost of the home.
Existing Homes and Related Services
While resales of existing homes are not subject to VAT, they are influenced by transfer duties. However, the increase would affect all VAT-inclusive services linked to home buying, such as attorney fees, estate agent commissions, and home loan registration fees.
Although the direct cost of the home may not change, buyers will feel the pinch when it comes to the associated services, all of which will see a price increase due to the VAT hike.
Overall Affordability and Bond Repayments
The cumulative effect of increased costs for services can extend to the overall affordability of homeownership. "Prospective buyers might find their budget squeezed, forcing them to qualify for smaller home loans or adjust their home buying plans. This shift could particularly impact first-time buyers, who are typically more sensitive to changes in the housing market's entry-level pricing.
Rental Market and Housing Demand
Additionally, a potential rise in new home prices could push some prospective buyers towards the rental market, increasing demand for rental properties. As new home prices inflate, we might see a delayed reaction in purchasing as buyers hold off, leading to a hotter rental market. This could further strain affordability for renters and escalate the overall cost of living.
Michael-Anne Abrahams a bond originator from MyProperty Home Loans.
BUSINESS REPORT
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