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I Issue: May 2004
I Editor: Berry Everitt I |
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Your Area Specialist:
Chas Everitt International
sales agents have all the latest market information
regarding local property values at their fingertips
– and are committed to the highest standards of
personal service when it comes to selling your home.
In addition, the Chas Everitt International property
group offers you, the homeowner, the best possible exposure
for your property in both national and international
markets. So if you are thinking of selling your home,
call your nearest Chas Everitt International office
today for the name of your local area specialist - or
visit www.chaseveritt.com
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Every month the Property
Signpost Newsletter will be issued to all our
subscribers, filled with real estate information to
help you make an informed decision, whether you are
buying or selling a property.
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Contents
1. Welcome By Publisher
2. Rental property: Claim what you can,
and don’t sell too fast
3. Taking the
long view on transfer duty
4. When it comes to stands, less is sometimes
more
5. Check out the floorplan before
the features
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1.
Welcome By Publisher
As the SA Revenue Service
keeps reminding everyone, it’s “filing
season”. And while filling in tax returns is
no-one’s favourite occupation, it never hurts
to look at ways to reduce your tax liability - or
to see if you’re entitled to claim something
back from the taxman, as per our first article this
month.
Many people also take the opportunity at this time
of year to revisit and revise their long-term financial
plans, and if yours include buying a new home or investing
in a second or third property, we’re sure you’ll
also find value in the articles that follow.
Meanwhile, we’re back in rapid growth mode,
having recently opened new Chas Everitt International
franchises in Cape Town North, False Bay, Stellenbosch,
Kempton Park and Hartbeespoort, and with more offices
scheduled to open in Midrand, Jeffrey’s Bay,
Bloemfontein and Pretoria in the next few weeks. And
the applications to join the group just keep rolling
in…
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REPAIR CERAMIC TILES
You'll need the following tools to begin:
A small punch
Ceramic tile in appropriate size
Hammer
Mastic (tile adhesive) or glue
Mortar (your choice depends on where you are
repairing or replacing the tile.) Check at your
local hardware store for recommendations
Safety glasses
1 inch putty knife
Grout
Always remember to wear your safety goggles
before beginning. Take the punch and hammer
to break the bad tile just enough to get the
putty knife underneath it so you can lift it
out. Clean out all of the tile and tile mastic.
Use the 1 inch putty knife to put the mastic,
or whatever adhesive you choose, on the new
tile and press into place, making sure it is
level with surrounding tile. When dry, mix grout
and finish off.
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2.
Rental property:
Claim what you can, and don’t sell too fast
Investing
in well-chosen rental properties is one of the surest
ways to create wealth – but it is definitely
not a free ride in tax terms, especially in South
Africa, where owners are liable for income tax on
all income they earn by letting property, and the
tax rates are high.
To maximise their real returns, investors should thus
take the trouble to calculate and claim all the costs
relating to the generation of rental income that SARS
allows. These costs include: The interest on the home
loan obtained to buy the property; Municipal rates
and taxes; Sectional title levies if applicable; Commission
paid to a managing agent; and Repairs and maintenance.
Capital expenditure, including the purchase price
of the property and the cost of any improvements,
may not be deducted against rental received –
but could possibly be added to the “base cost”
of the property for Capital Gains Tax (CGT) purposes.
And this brings us to another tax consideration regarding
investment properties: The question of whether the
investor will be liable for CGT or income tax on the
resale of the property.
In general, if one buys a property with the intention
of holding on to it as a long-term investment, and
then let it, the Receiver will regard the proceeds
of the sale as being of a capital nature, and thus
subject to CGT rather than income tax.
However, if you buy a property and resell it again
quickly, the Receiver is quite likely to categorise
the original purchase as speculative, and the proceeds
of your sale as taxable income – even if your
original intention was to hold on to the property
and your sale was prompted only by a sudden change
of circumstance.
The difference between the two possible tax liabilities
is of course huge, and underlines the fact that time
is the property investor’s greatest ally.
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3.
Taking the
long view on transfer duty
The
raising of the transfer duty threshold in this year’s
Budget has widened the tax gap between pre-owned and
newly-built homes, and should encourage buyers to take
a closer look at the long-term financial implications
of their choice.
While payable on a sliding scale, the transfer duty
on pre-owned properties now only starts at R150 000
– and is of course far less than the 14 percent
VAT payable on all newly-built properties (see table).
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Home
purchase price (excl tax)
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Transfer
duty if pre-owned |
Transfer
duty as % of price |
VAT
payable at 14% if new |
| R200
000 |
R
2 500 |
1.25 |
R
28 000 |
| R
35 000 |
R
10 900 |
3.11 |
R
49 000 |
| R
500 000 |
R
22 900 |
4.58 |
R
70 000 |
And while it is true that developers
most often charge VAT-inclusive prices for newly-built
properties, relieving buyers of having to find the cash
to cover the tax, it is also true that the buyer of a
newly-built unit will usually get a smaller home for his
money than if he were to buy a pre-owned one for the same
price.
The reason for this becomes obvious if one takes the simple
example of a property costing R300 000, tax inclusive:
In the case of a pre-owned unit, the tax portion of the
price will only be around R7000, and in that of the newly-built
home, it will be around R37 000 - which the developer
has to pay over to SARS. Given rising building costs,
as well as the general expectation of a higher standard
of finish in newly-built homes, the developer will almost
certainly have to reduce the size of the home to come
in on budget.
Alternatively, adding on the respective taxes would take
the total cost of a R300 000 pre-owned home to R307 500,
and that of an equivalent, newly-built home to R342 000.
The buyer who opted for the newly-built home in this instance
might well argue that he was likely to save more than
the difference by avoiding the generally higher repair
and maintenance costs on an older home. But he would have
to weigh this carefully against the possibility of having
to fork out more cash for a deposit than the buyer of
the pre-owned home and, in all likelihood, the need for
a bigger home loan, which would mean he was not only paying
a premium for his home at the outset, but a great deal
more in the long-term.
At an interest rate of 11,5 percent, for example, the
total cost over 20 years of a home priced at R307 500
would amount to R786 708, and that of a home priced at
R342 000 to R874 973. And the difference would be even
greater if, as is most often the case, the buyer of the
pre-owned home had paid the transfer duty in cash and
only taken a loan for R300 000.
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4.
When it
comes to stands, less is sometimes more
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The
size and shape of the stand on which a house is built
often plays a crucial role in deciding the value of
the property – but a big plot does not always
mean a higher price.
A large area of ground that ensures that other homes
cannot encroach on a sea or mountain view, or which
can be subdivided and sold off later, should add substantial
value to a property.
But if much of a large stand is on a steep slope that
is difficult to develop as a garden or just to keep
clean and neat, it can actually detract from the value
of the property when it is compared to similar homes
on more level stands that provide space for outdoor
entertaining or a spectacular garden.
Generally speaking, in a suburb where all the homes
are on level stands, the house with the biggest usable
garden area will fetch the best price. This is particularly
true in older, upmarket suburbs where higher-income
buyers will often be prepared to pay a premium to
ensure greater privacy.
On the other hand, highly mobile professionals in
today's business world often do not have the leisure
time to maintain or enjoy a large garden, and may
well put more of premium on actual home size and security
than on stand size.
Either way, though, stand size will affect the comparative
resale potential of a home in its own area. Canny
buyers know this and will check on local demand trends
with an experienced agent familiar with the area before
committing to any purchase.
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5. Check
out the floorplan before the features
So
the townhouse clinging to the clifftop has a fabulous
view – but have you stopped to think how many
trips you’ll have to make up all those stairs
just to get the groceries into the kitchen?
And if you’re looking for a family home, is it
such a good idea for the outdoor entertainment area
to lead straight off the TV lounge? Wouldn’t it
be better for you if it led off the dining room or kitchen
so you could still enjoy a quiet Saturday afternoon
watching sport on the box while your teenagers had their
friends around for a pool party?
Buyers have lots of tough decisions to make when shopping
for a new home, but the daunting task can be made much
easier by mentally "moving into" a property for a few
minutes not only to visualise where your furniture and
belongings would go, but to imagine how you and your
family would live there.
Does the floorplan fit your lifestyle? If so, you'll
be well on the way to finding the right home. Conversely,
you should not choose a home that will be awkward for
your family to live in even if it has many attractive
features because a bad match usually leads very soon
to another (costly) round of househunting and moving.
Of course there is no absolute right and wrong. The
floorplan that puts one buyer off will suit another
very well. For example, a couple with young children
will probably want their bedroom within earshot of the
children's rooms, while others will want a buffer zone
between them and their teenagers sound systems.
Similarly, a compact kitchen may well appeal to a jet-set
young executive who spends a lot of time travelling
and eats out frequently, but will probably be impractical
for those used to entertaining their family and friends
at home.
The secret is to stay focused on what would suit you
and not be embarrassed to say that a home you have viewed,
lovely as it may be, is not a good fit for your family.
Good agents will not be offended because they know that
there is a buyer for every home and one of them may
just have something else to show you that matches your
mental picture perfectly.
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