Words: Candice Botha | Image: Shutterstock
The new VAT rate of 15% was implemented on 1 April and consumers are adjusting to new pricing on shelves. The new rate affects property to some extent, although VAT isn’t charged on once-off residential property transactions, rentals or levies. In other words, property buyers and tenants are not subject to VAT. Buyers pay transfer duty instead. However, developers, who buy, build and sell residential properties, and owners of commercial properties which are either let or sold are affected by the VAT increase.
Richard Gray, CEO, Harcourts South Africa, says, “Although 1% seems like a very slight increase, transactions like high-value commercial properties, where one of the parties is registered for VAT, or new development investments, might feel the increase far more than the middle to lower end of the market.”
Lee Ellis, director, Tyson Properties Westville, says residential developments will be affected by the VAT increase, including those which were unfinished or still in the pipeline on 1 April.
Pieter Janse van Rensburg, franchisee, Just Property, says that the VAT rate that was effective on the date that a written sales agreement was entered into will apply if the property is residential, if the price is included in the documents, if the agreement was signed before the increase date and if transfer of the property took place on or after 1 April 2018.
VAT also affects agents’ commissions.
“While the commission itself is not affected, the VAT on commission will cost more. I would imagine sellers will use this to try and leverage a lower commission rate, which will be unfortunate as it’s akin to asking a shop to reduce the price of its products to absorb the increase in VAT. This cost will also have an effect on the transaction cost in property disposal and could impact sellers and their net sale proceeds,” says Jonathan Davies, regional director, Tyson Properties Gauteng.
Another area of residential property where VAT can apply is on the fees charged by letting agencies or property management companies. The charges to owners and tenants each month will include VAT at the standard rate if the company or agent is registered for VAT.