According to Seeff chairman, Samuel Seeff, this is a complete reversal from five years ago when a lack of buyers was the challenge of the market.
While the wide scale stock shortages, quickened selling times and better prices signal the ideal selling conditions, sellers are just not seeing the value of selling. Unless they absolutely have to move or upgrade, they are rather staying put and remodelling or renovating as we are now seeing in areas such as Cape Town's Atlantic Seaboard.
The legislated transaction costs are just too high, says Seeff. When you factor in the aspects that make up the costs of transacting - transfer costs, transfer duty and capital gains tax (CGT) - sellers are in some instances having to fork out the equivalent of up to 20% of the value of the purchase price just in costs.
The latest transfer duty hike on transactions above R2.25m being just another factor that has now driven sellers to rethink whether they want to be selling right now. While the hike from 8%-11% may seem rather banal at an additional 3%, it in reality translates to anything upwards of 20%-40% and a rather hefty additional R70,500 to R670,500 in some instances.
Consider the following illustration for example. A seller puts his/her primary home (purchased in 2001 for R6m) on the market and sells it for R10m. The costs of this transaction amounts to R838,964.10 (estate agency commission at around 5% and CGT).
He/she now purchases a home for R12m with a 50% bond and incurs further transactions costs in the form of legal and bond fees of R112,064.40 and transfer duty of R1,157,500, thus amounting to an additional R1,269,564.40. The total transaction costs though amount to R2,108,528.50, or about 18% of the purchase price. These are hard costs that add no value to the property and you can therefore see why the seller would rather invest the R2m-odd into his/her existing home.
It has become too punitive to transact and the net effect has been a slow-down in sales volumes, says Seeff. The hike in transfer duty has now simply pushed the market beyond what it would bear. And this at a time when property is one of the few economic growth sectors.
With sales volumes up over the last two years, there is no doubt that government was earning a handsome income. In trying to boost its revenues from the property sector however, it is in fact slowing down demand and sales and, rather than earning more in transfer duties, is now losing out altogether.
Consider for example that on transactions of between R5m and R25m, of which there were quite a number over the last year, top end buyers were contributing between R317,000 and R1.917m in transfer duty. The effect of a slow-down however, is that instead of earning an already hefty income from transfer duty, government now earns nothing.
On a R5m sale, the original transfer duty would have amounted to R317,000. The increase amounts to an additional R70,500. By not transacting, the opportunity cost is not just the additional R70,500 that is lost, but the original R317,000 transfer duty that is now lost.
On a R10m sale, the loss is even more pronounced. By hiking the transfer duty by an effective 30.75% or an extra R220,500, the original transfer duty fee of R717,000 is lost. On a R25m sale, the loss is R1.917m rather than gaining an extra R670,500 that amounts to a 34.98% hike.
On the Atlantic Seaboard alone, more than 300 transactions, or just under 40% of all transactions last year fell above the R5m price band. Almost 70% of the market here falls above the R2.25m price band. In Cape Town's southern suburbs, almost half of all sales last year were above this price mark.
This is hugely significant if you consider that you have to sell a great deal more lower priced properties to generate the R317,000 in transfer duty that a single R5m sale would have generated.
