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Retirement tax has been scrapped, a higher margin on tax-free savings has been granted and secondary tax on companies, which will be replaced by a dividend tax at a shareholder level, has been reduced.
This is indeed good news for consumers and companies - but we are convinced that the proposal for a basic, compulsory, earnings-related social security system planned for implementation in 2010 will be the main topic of heated debate, especially if one considers the closely-related wage subsidy for consumers who fall below taxable income levels.
But let us focus on what the Budget means for property: Transfer duties for natural persons remain the same, namely no duty on properties valued up to R500 000 and 5% on properties with a value above R500 000, while properties to the value of R1 million and above are taxed at R25 000 plus 8% on the value above R1 million. Companies still pay a flat rate of 8% on the value of the property.
The maximum effective rate of capital gains tax on the disposal of assets remains at 10% for individuals, 14,5% for juristic persons such as companies, and 20% for trusts. It should be noted that the 14,5% for juristic persons does not take the effect of secondary tax on companies into account.
The CGT exclusion on primary residences will remain at R1,5 m, while the annual capital gain or loss exclusion for individuals and special trusts will increase from R12 500 to R15 000.
Finance Minister Trevor Manuel also proposed that stamp duties on short-term leases (less than five years) should be abolished, which means that most residential buy-to-let leases will not attract stamp duty. Long-term leases of fixed property are subject to stamp duty calculated at 50c per R100 or part thereof.
Meanwhile, government's threefold increase of the housing budget must be good news for homebuyers at the lower end of the market. It will definitely expedite the delivery of basic stock, and probably boost smaller and medium-size developers in the process. Property remains one of the safest investment commodities, and the question now arises: are we going to see more buy-to-let activity in the affordable housing market segment?
Other interesting Budget fact and figures include: An additional R13,3bn for the 2010 Soccer World Cup infrastructure, bringing Government's total contribution to a whopping R17,4bn; an additional R24,6bn to provincial governments to improve the quality of and access to health, school education, welfare services and economic services; an additional R5bn to local governments in support of the delivery of free basic services; an additional R4,6bn for education; and R11,6bn more for community development.
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The fight against crime also received attention in the form of an additional R6,8bn, while international relations and defense should improve with the allocation of an extra R4,7bn. A total of R3,7bn has been budgeted for a comprehensive HIV and Aids programme, while another R2,4bn will be available for industrial development, science and technology.
While we cannot accurately predict what influence the latest Budget will have on our business or on the property market as a whole, it remains good advice to stick to the basics. And remember: "A smile is a curve that can set things straight".
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The National Credit Act aims as its main purpose, to protect consumers. Each right of a consumer carries with it a corresponding duty on the part of the credit provider. A consumer is defined as:
- the party to whom goods or services are sold under a discount transaction incidental credit agreement or installment agreement
- the party to whom money is paid, or credit is granted, under a pawn
transaction
- the party to whom credit is granted, under a credit facility
- the mortgagor under a mortgage agreement
- the borrower under a secured loan
- the lessee under a lease
- the guarantor under a credit guarantee
- the party who received money or credit under any other credit agreement
The rights discussed hereunder do not include all those rights which the consumer has. These are however some of the most important ones:
1. Right to apply for credit and non-discrimination
Every person, association and juristic person has the right to apply for credit, but no-one has a right to be granted credit. A credit grantor may refuse credit on reasonable commercial grounds. A credit grantor however may not unfairly discriminate against a consumer.
2. Right to understandable language
The consumer has the right to receive any document in an official language that he reads and/or understands to the extent that it is reasonable. Documents must be drafted in plain language for an ordinary person with average literacy skills and minimal credit experience to understand the contents, significance and importance of the document.
3. Rights regarding information held by credit bureau
Credit bureau, although it plays an important roll for the purposes of providing credit providers with information on the credit worthiness of consumers, are in possession of information which may be damaging to the consumer. The information may include such person’s credit history, income, assets and debts. A consumer who has been a party to a debt arrangement and who has satisfied his obligations in terms thereof may have the fact of the existence of the debt arrangement expunged from the records of a credit bureau. Should a court order be rescinded, information relating to a judgment, must also be expunged from his records by a credit bureau. A credit provider must advise a debtor before adverse information is reported to a credit bureau and the affected person may challenge it. Any person may inspect a credit bureau and challenge the accuracy of any information.
4. Protection against marketing practices
The Act prohibits negative option marketing. A credit provider may not make an offer to enter into a credit agreement, on the basis that an agreement will automatically come into existence, unless the customer declines the offer. A failure to respond to an offer and/or to ignore it cannot ordinarily be taken as acceptance. If an agreement is concluded as a result of such a negative offer, it will be treated as unlawful and void.
5. Indemnity against lost cards
The credit provider may not where the consumer has access to the facility by means of a card, hold the consumer liable for the use of the credit facility after the loss or theft has been reported of a card, unless the consumer’s signature appears, for example, on a voucher or sales slip, or the credit provider has other evidence available witnessing that the consumer authorized, or was responsible for, the use of the facility.
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6. Right to documentation
A credit provider may not charge a fee for the original copy of any document that he is required to deliver to the consumer.
7. Right to confidentiality and privacy
Anyone who receives, applies, retains or reports confidential information pertaining to a consumer, must protect the confidentiality thereof. The national credit regulator can enforce compliance therewith and failure by a credit bureau to comply therewith is an offence.
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8. Right to apply for debt review and re-arrangement of obligations
A consumer is over-indebted when he is unable to satisfy his obligations, under all his credit agreements in a timely manner, whilst taking into consideration his
financial means, obligations etc. An evaluation of the debtor’s position, in order to decide whether he is over-indebted may be initiated in two ways:
| 8.1 |
in any court proceedings where it is alleged that a consumer is
overindebted, the court may refer the matter to a debt counselor for an evaluation and recommendation, or may itself declare the consumer over-indebted, or
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| 8.2 |
the consumer may himself apply to a debt counselor to be declared over-indebted - the debt counselor must then notify all the credit provid ers listed in the application for a debt review and all credit bureaus of the application. The debt counselor will then evaluate a consumer’s indebtedness and may decide that: |
| 8.3 |
the consumer is not over-indebted, in which case the application is rejected |
| 8.4 |
the consumer is not over-indebted, but is experiencing problems in paying his debt punctually,
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| 8.5 |
the consumer is over-indebted, in which event the counselor may then recommend to the Magistrates Court to make one or both of the following orders:
| 8.8.1 |
that one or more of the consumer’s agreements be declared reckless,
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| 8.8.2 |
that one or more of the debtor’s obligations be rearranged.
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| 8.8.3 |
While a debt review is pending, litigation by the credit provider against the consumer is suspended (subject to certain
exceptions). A consumer who has applied for debt review or has alleged in the court that he is over-indebted, may not use his credit facility or enter into a further credit agreement, until:
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| 8.6 |
the debt counselor has rejected his application, |
| 8.7 |
a court has decided that the consumer is not over-indebted, |
| 8.8 |
a rearrangement has indeed occurred and the consumer has paid all his debts in terms thereof.
A credit provider who concludes an agreement with a consumer while he is under debt review, or while a rearrangement is in place, runs the risk of the agreement constituting reckless credit.
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9. Right of cooling-off
A consumer may terminate an agreement within 5 (five) business days after he signed it. Termination must be in writing and delivered by hand, fax, email or registered mail. He must tender return of any money or goods and must pay in full for services received. The credit provider must refund any payment by the consumer within 7 (seven) days after delivery of the termination notice. The credit provider may claim from the consumer the reasonable costs of having the goods returned and restored to a saleable condition, as well as a reasonable rent for the use of the goods. The cooling off period is limited to:
9.1 leases and installment agreements only,
9.2 entered into at a location other than the registered business address
of the credit provider.
10. Early settlement and repayments
A consumer may request a statement from the credit provider of the amount required to settle his account. He is entitled to settle his account at any time with or without prior notice. In order to settle the account he must pay the unpaid balance of the principal debt and all unpaid interest, charges and fees. In the case of a large agreement a settlement charge is payable and in the case of a small or intermediate agreement, no charge. Where the contract provides for a variable interest rate, the charge consists of the interest payable for the difference between the period of notice of settlement and three months. This effectively means that if no notice is given of settlement, the consumer must pay three months interest in addition to the settlement amount, to compensate the credit provider for early payment. Where the contract provides for a fixed interest rate, a termination charge may be prescribed.
A consumer may make advance payments, without settling the full debt and the credit provider is obliged to accept it, even if it is not due. The payment must be appropriated to due and unpaid interest first, then to due and unpaid fees or charges, and then to reduce the principal debt.
11. Surrender of goods
A consumer has a right to rid himself of the agreement, where goods are involved, by unilaterally deciding to return the goods to the credit provider, in pursuance whereof the credit provider can sell it again in order for the account to be settled. The credit provider must then sell the goods as soon as practicable for the best price reasonably obtainable. After the goods have been sold, the credit provider must credit or debit the consumer’s account with the proceeds of the sale, less the reasonable costs incurred in connection with the sale.
12. Statements of account
Credit providers must deliver to consumers periodic statements. The periods between statements, may not exceed six months in respect of a mortgage agreement, two months in respect of an installment agreement, lease or secured loan and one month in all other cases.
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It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way--in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
Charles Dickens, 1859
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Cees Bruggemans, Chief Economist of FNB, recently wrote a piece on the SA economy in which he stated that this economy had literally evolved into two machines existing side by side. The one is a virtuous machine, a fast-growing economy, with accelerating fixed investment, brisk household spending and busy creating jobs. Parallel to that there is a vicious social machine of spreading crime which feeds off many luckless urbanites which have come to see crime as a shortcut to a better life.
The more crime floods the headlines, with many a suggestion on the curbing thereof, the less anything seems to be done about it, or even be achieved by the government agencies responsible therefore. The situation regarding the HIV/AIDS pandemic enjoys as much prominence, with as much as 20% of the SA workforce affected. Again those responsible for the treatment of the situation are shying away from their duties by every possible means.
Much has been made in recent times about the growth in job creation by a suggested 1,5 million new jobs. The question however was recently been asked as to which parts of the economy in particular have generated these positions: security, crime prevention, frail care of those weakened by HIV/AIDS, funeral undertaking, etc., or jobs generated by “real” economic growth in industrial, manufacturing or commercial businesses?
Exchange Rates
"EXCHANGE controls must go!" That's been the rallying cry from most business people for many years. No doubt, in the run-up to the Budget on February 21, calls to use the opportunity toabolish remaining controls will intensify. Every year this part of the guesswork of economist before the actual budget speech enjoys preference, and this year is no different.
During 2006 the main reason for the demand to remove exchange control was in order to get the rand to devalue. This year the demand will stay, but the reason will be different: during 2006 the rand devalued comprehensively against the main trading currencies, but the inflow from foreign investors kept to short term options. If a decrease in rand value can lead to an established increase in exports, resulting in continued increases in the profits of listed and major companies, foreign investment in SA could convert to fixed and real investment.
Predictions from economic analysts remain that the value of the rand will continue to move sideways for as long as local interest rates and inflation trends continue as forecast.
Interest Rates
The Monetary Policy Committee decided to leave the repo-rate unchanged during the second week of February. This was after the previous four MPC meetings each resulted in a 0,5% increase. Although one needs to read between the lines of the SARB President’s report, it seems that the MPC shared the opinion of economists that the CPIX may have reached its upper curve in the inflation cycle. Mr. Mboweni however repeated his calls to business in SA to lower its offering of credit to the broad spectrum of consumers.
Depending on the inflation figures released for the next two months, interest rates should continue staying firm for the foreseeable future. Of the outside factors that will always remain part of the equation in the prediction and control of inflation, the price of oil will keep on determining far more than just the price petrol, as the cost of transport affect literally every aspects of life.
Property Values
With residential real estate not the flavour of the month for investors for more than a year now, it is interesting to see that prices of property are affected by much more than just interest rates. Reports of “cheap” housing to be provided in more effluent areas in time to come, has resulted in estate properties on the edges of town to loose some of its previous attraction. Some agencies are even reporting interest in developments in more established townships to be on the rise compared to the newer parts of town.
The rental market continues to be in a makeover, as the “new generation” of tenants have a much bigger portfolio from which to rent, but with property investors starting to see slightly better returns as well.
Budget Speech 2007
What was interesting to note is the amount of economists and other commentators asking for an overhaul of the local tax regime. What started as a voice calling in the desert a couple of years ago has become a stream of experts asking for a flat tax rate – some suggest a rate around 22%. This trend is happening in more and more countries, and when a comparison is made between SA and these, we sit with an above average company tax rate and a VAT rate below the average. If SA were to introduce these changes, chances are good that the country – as a developing nation – could attract much more foreign investment and a more equal taxation of its citizens.
Summary
Dickens’ Tale of two cities compares the London and Paris of the 18th century, but it is often almost impossible to determine which enjoyed “the best of times” and which “the worst of times”; which had “the age of wisdom” and which “the age of foolishness”.
Only time will tell how long the local economy will continue to run as two entities. With all the opinions and mindsets, idiosyncrasies and interpretations, both of history and the future, at play in this country, it is often as impossible as in Dickens’ tale to determine which is better and which is worst.
Will the transition period of the New South Africa end in similar fashion to Dickens’ book of a century and a half ago? Will it be “a far, far better thing that we do, than we have ever done” and will “it be a far, far better rest that we go to than we have ever known”?
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It is with great pleasure that we can introduce you to the Jigsaw Referral Centre (JRC) - South Africa’s primary managed property referral system.
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The JRC system is accessible to everyone who wants to work smart including:
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