Its time for government to join other progressive countries and allow individuals to own property and other assets in tax efficient personal pension accounts, says Neville Schaefer, CEO of residential property managers Trafalgar.
"The forthcoming government investigation into pensions announced by finance minister Trevor Manuel in this year's budget is the perfect occasion to explore it," adds Schaefer.
Personal private pension accounts allow individuals to allocate a portion of their incomes to putting assets into their own pension funds through tax efficient special purposes vehicles. As with normal pension funds, the money placed in the personal account is tax deductible but the income received as a pension is taxable. It has increased savings and wealth in Australia and is the centrepiece of America's proposed Social Security reform.
"And it has proved most popular among young people," notes Schaefer "They will be far less dependent on government pension in future. According to recent polls in America, 68% of young people approve of personal accounts instead of corporate pensions or government social security, and most of them support the opposition Democratic Party.
"Property is usually the main asset built up in these accounts because it is possible to borrow more against property at lower interest rates than other assets. This speeds up capital accumulation and the growth of wealth through property equity.
"There is a special reason why introducing it in the next few years would be perfect timing in South Africa. Despite complaints that rising house prices - currently averaging close to R650 000 -- are pushing ownership beyond the means of first time buyers, the Financial Mail has pointed out that those average prices only apply to 1,2m of about 8 million privately owned homes.
"In fact we are swimming in a sea of cheap homes averaging about R120 000 each and some inner city sectional title flats are still available for R30 000 or less."
But he says bank lending and estate agents creating secondary markets are spreading beyond the established house market to the townships and inner city suburbs. It could take anything up to eight or 10 years before all privately owned homes are in the house market with secondary markets and finance easily available. There will be continual opportunities for South Africans to invest in affordable, growing assets.
"Personal pension accounts will give South Africans the opportunity to build up their property assets tax efficiently, increase the number who are independent when they retire and reduce the number of people who must look to the State for help, adds Schaefer. "It will also distort the house market less and be less of a drag on the fiscus - because some of it will be new economic activity -- than making mortgage payments tax deductible. And it could improve rental supply and keep rents moderate."
Publisher: Trafalgar
Source: Trafalgar
Time for government to get progressive in property
Posted On Wednesday, 30 March 2005 02:00 Published by eProperty News
Its time for government to join other progressive countries and allow individuals to own property and other assets in tax efficient personal pension accounts, says Neville Schaefer, CEO of residential property managers Trafalgar.
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