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loophole for homebuyers
11 June 2007
There is a loophole in the new National Credit Act through which homebuyers can side-step the stricter financial measures contained in the act. Developers expect that homebuyers will in future use close corporations and trusts to buy property.
John Chapman, a director of the Rabie Property Group which developed Cape Town's Century City, says close corporations and trusts with more than two trustees are exempted from the act's requirements, and says he would be surprised if homebuyers don't take advantage of that.
"It is, however, illogical for an individual to buy a house through a close corporation due to the tax benefits he or she would have to sacrifice, especially the R2m exemption from capital gains tax," says Chapman.
On the other hand, it makes sense for buyers to purchase a house through a trust, as long as there are more than two members of the trust, as that would exempt them from having to comply with the act. Despite the loophole, it's expected that the new law will act as a damper on the residential property market.
Jo Pelser, the MD of Sable Homes, one of the largest residential development companies in the country, thinks that while the new law is meant to protect consumers, it will delay the loan-approval process and significantly affect buyers' affordability. The act will make home loan transactions more complex as users will have to provide all information about their financial position when they apply for a home loan.
He says the more onerous prerequisites that the law stipulates for property financing will make housing even less affordable for first-time entrants into the property market.
This, together with last week's rate hike, makes buying a home less accessible for prospective buyers.
"Up until the end of May, banks generally granted buyers a home-loan amount where the monthly repayments on that loan was not more than 30% of the household's income," says Chapman.
Using the example of a household with an income of R35 000, Chapman explains that the repayment amount cannot exceed R10 500 a month. "The loan amount will now be calculated based on a household's net income. That is the income after all other household debt is paid for."
This will, without doubt, restrict homebuyers, especially those with a lot of debt.
Elma Kloppers, www.fin24.co.za
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