New tax laws are making life difficult for speculators hoping to make easy money in the residential market.
Schalk van der Merwe of Sotheby's International Realty says Sotheby's regularly hears of developments being bought within hours of launch. Individuals or syndicates, out to make a "quick buck", buy up new property or reserve stands with the intention of selling before taking transfer.

"But speculators have been left with sweaty palms due to the introduction of capital gains tax - on every property transaction. In addition, every transaction now has to be reported to the South African Revenue Service (SARS), which decides whether the proceeds are capital or revenue."

As a way around this, speculators have tried tying up property in the name of a company or close corporation, then selling the shares for a profit, but since 2002 the Transfer Duty Act stipulates that such a sale attracts transfer duty on the full value of the property.

"Tying up a property as nominee for someone else, who is then sourced just before transfer and who ?buys? the contract for the right to be nominated, has also been blown out of the water, with SARS ruling that unless a nomination is made upon acceptance of an agreement of sale, two transactions have taken place, both of which will be subject to transfer duty," Van der Merwe says.

He says speculators also buy from the developer, sell before transfer and charge the new buyer a "cancellation fee". Or a tripartite agreement is entered, substituting the speculator with the third party as buyer. But, since 2003, if the speculator receives anything at all, the deal is seen as two transactions subject to duty.

Business Day

Publisher: Business Day
Source: Inet Bridge