Rise in house prices slow down as result of rate hikes
The uncertain interest rate environment is contributing to the slowdown in South African house price growth. Nominal house price growth of 14.5% y/y was recorded in the middle segment of the market in July. This is down from the 15% y/y growth recorded in June.
South Africa’s biggest home loan lender, Absa, says that the average price of a house increased to about R932 000. According to Absa Senior Economist, Jacques du Toit, this downward movement in house price growth is due to the uncertain interest rate environment.
Capital Gains Tax – how to figure it out
According to South African legislation, any gains made from a property sold on or after 1 October 2001, will be subject to Capital Gains Tax. It is important to take Capital Gains Tax (CGT) into consideration when deciding to sell a property.
Properties that appreciated in value over the past few years should be considered when deciding to put a price tag on it. For example, a house purchased for R2m that generated a R5m capital gain over a 6 year period is now worth R7m. The first R1.5m gain on a primary residence is exempt from Capital Gains Tax. The net taxable gain on the property is thus R3.5m, of which 25% will be taxable – in this case – R875 000. The tax levied will be at the seller’s marginal tax rate, say for instance 40%, which means that 40% of R875 000 is R350 000, which is the CGT payable.
South African property market settles down
According to David Rogers, MD of Homenet, the difference in asking and selling prices in the property market is back to normal levels. Normal refers to 5% and 10% in most areas. In the middle of last year, the difference between the asking and selling prices were as much as 25% to 30%.
This decrease in the difference between asking and selling prices is good news for home buyers, and home sellers shouldn’t be too concerned either, as this means there is an increase in buyer interest and thus in sales activity.
Higher interest rates could benefit savers
The repo rate is the rate that the Reserve Bank charges on money that banks borrow from it through the refinancing system and the higher the repo rate, the higher interest rate the banks pay and this of course, is passed on to consumers.
Thus, there is no benefit for banks when interest rates rise. Higher interest rates are intended to discourage borrowing and encourage saving, which usually results in lower inflation because demand for goods and services declines as people buy less on credit, and supply increases if additional savings are used productively in the economy.
Johannesburg to improve building application times
Property developers are putting Johannesburg under a lot of pressure to improve its turnaround time for building and rezoning applications as some were apparently kept waiting for up to four years for development approvals.
Johannesburg now plans to approve 60% of building applications within 24 hours. Some developers started taking legal - action desperate to speed up the approval process. City of Johannesburg planning chief for urban development Prof Philip Harrison said that from September a new customer service centre, the Metro Link Centre, would make it possible to process two-thirds of building applications in 24 hours. Up to 70% of plans could be approved within 28 days.
Higher interest rates not good for homeowners
The South African Reserve Bank has increased the repo rate by 50 basis points last month, which lead to banks increasing the prime lending rate to 13%.
First National Bank has put together a rate calculation table that indicates how the rate hike affects the monthly repayment amounts on a R300 000, R600 000, R800 000 and R1-million home loan. All loans were calculated with 240 months to pay and were issued at prime with no premium or discount.