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My Tip for Trevor March 4, 2009

Posted by baldricman in General, News.
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Early last year I heard about the “Tips for Trevor” concept that Trevor Manual had implemented some time previously, and I felt quite excited by the prospect of being able to (at last) express an idea I had been mulling over for some time. (I duly sent the tip off to Trev, but of course have never heard back nor seen the idea implemented, as you will see)

(You can send your tips in here)

I experienced first-hand the difficulty in getting into the property market about 3 or 4 years ago, at the time when transfer fees were “eliminated” from properties below R500 000. Even with this “helping hand” to lower-bracket property buyers, I struggled at the time because of the still inordinately high prices of very small properties: flats, in my case (which of course escalated further the moment the news of the transfer duties broke). However, I luckily managed to purchase in the end, due to a subsequent lowering of dietary standards for a few months.

Obviously, I became acutely aware of WHY it is so difficult to buy property as a single, first time buyer: Google some average house prices (Nov 2008 average was 750K to 800K), and then take a quick look at any home loan calculator (simple one here) to see what your bond repayments would be on a prime-minus-one interest rate (just for arguments sake). Then, multiply that by 3.3, and that, officially, is what you need to earn each month. Now, if you earn that or more, than thats great. But now, consider what a single teacher, or a secretary, or any number of “ordinary” working people earn, then add in a child or two, and tell me if you think its possible? 

To cut to the chase, I realised that the following idea might just help alleviate the strain. Very simply, the idea is for SARS to offer tax-exemption or reductions for the portion of your income that is used to pay your homeloan. To expand slightly, I imagine creating a few caveats on this might be necessary, such as limiting the break to loans that are for property you will be living in (in other words, forget about holiday homes and investments.) I realise that because many people are spending the full limit of 30% (or more) of their salary on bonds, this saving could amount to something quite substantial (my point being that this amount could be too much for SARS to bear). However, I feel that the principle is sound: help those who are investing in property, rather than looking at how to bail people out of luxury-debt. Reward (I use the term loosely) those who are wisely trying to invest in property, whether its a full exemption for that portion of their salary, or just a percentage. I’m no financial-guru (by any stretch), but I’m sure SARS could figure out something viable here. It seems every effort is made to make debt and luxuries more accessible to the average joe, but the “good stuff” like homeloans, RAs, and investments, remain fairly static.

What are your thoughts?

PS: I heard sometime after sending the tip last year that this idea, or something similar to it, has been implemented in other countries… Can anyone confirm?

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Comments»

1. Deems - March 4, 2009

I speak under correction, but I believe the US offers tax-exempt bonds but only certain states and certain cases.

I think you’ve definitely got a great idea there to help first-time buyers get into the housing market. We were very fortunate to buy our property at the low price it was on offer back in 2003 and shudder to think how we could be able to afford the bond repayments had we bought the property for what it’s now valued at (more than double).

Single people earning a half-decent salary can more easily afford to cover their bond repayments, and have some spending/saving money at the end of the month. Try that with a family of four, with only once major source of income in the household – only one word comes to mind, difficult!

baldricman - March 4, 2009

Thanks Deems: I bought my property, somehow, just after the 2004/5 spike in property prices, which was partly the catalyst for the transfer duty cuts.
Oh, and a random a pet hate: property adverts in the newspaper, for a R3mil house, entitled “Starting Out?”.
Grrrr.

Deems - March 4, 2009

Yeah, and things like “for only”, “for just” and my favourite (not), “from as little as”.

2. Bill Cash - March 4, 2009

I just stopped by your blog and thought I would say hello. I like your site design. Looking forward to reading more down the road.


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