Bugle Sales Talk Editorial

Author: Andreas Wassenaar
Date: 2015-10-23

I am writing this from New York City, in the 1,900 room Marriott Marquis hotel overlooking Time Square. NYC is definitely the "city that never sleeps" and at any time of day or night thousands of people, mostly tourists, can be found mesmerized by the giant over-sized digital billboards that clothe the buildings along Broadway.

Today I went past one of New York's newest flagship residential developments called One57 because of its location along 57th avenue just on the south side of central park. This is an extraordinary 90-storey glass building, which offers incredible apartments with views over Central Park and Manhattan. What I found particularly interesting is that the penthouse was reported as sold in December for US$100m, to an anonymous owner (of-course).

The best exchange rate I could get for this trip was R13,82 to the US$. It is almost impossible for us as South Africans to imagine a R1,382bn apartment. The first thought I had was what would the annual rates and transfer taxes be on that level of property? According to a recently published report by the Economist Magazine (3rd Oct 2015) not that much. Only 2,8% was paid on this transaction in transfer duty, and the first annual property-tax bill has only come to US$17,268 or 0,02% of its value. Does this make New York a property tax haven? How does New York compare to another of the world's great cities such as London?

The first very interesting fact is that the 3,5m households in New York pay US$12bn in tax annually on homes worth US$1,7trillion (a rate of 0,71%). In contrast London's 3,5m households paid US$11bn last year on homes with a market value of US$2,2trillion (or 0,51% of its value). New York may well be a residential property tax haven for the super rich, but overall New Yorkers pay more. Unlike London, almost 90% of New York's property tax comes from taxing the stock of property rather than flows as houses or flats change hands. Their tax therefore largely comes from annual rates charged on properties rather than what we call transfer duty or what the UK call stamp duty.

New York has what economists call a "regressive" property tax system in that the lower priced properties pay a higher proportion of tax than the higher valued properties. As a comparison in London only 55% of property tax comes from annual rates and the rest comes from transfer duty (stamp duty). The UK recognized the problem with a regressive tax system and have adjusted their transfer duty rates (as we have done in South Africa over the years) so that higher valued properties pay proportionately more tax.

Homes over £10m in London now pay more than twice the rate for homes under £1m. UK stamp duties amount to a hefty 12% of the portion of the sales price above £1,5m. In South Africa our transfer duty rates were amended this year with effect from 1st March 2015 to reduce transfer duty on transactions valued at below R2,650,000 and to make the top marginal rate 11% charged on the value of the transactions over R2,250,000. For lower value transactions the transfer duty is as follows: 0% up to R750,000; 3% for the next R500,000 from R750,001 to R1,250,000; 6% for the next R500,000 from R1,250,001 to R1,750,000; 8% for the next R500,000 from R1,750,001 to R2,250,000; and 11% for everything above R2,250,000. South Africa therefore has a regressive property tax system favouring the lower valued transactions.

As we know that the average price transacted is around R1m this amendment has actually benefitted many property buyers within this bracket.

For further information and an interactive analysis of this article follow my blog: andreaswassenaar.blogspot.com.

Andreas Wassenaar

Principal - Seeff Dolphin Coast

Cell: 082 837 9094

andreasw@seeff.com

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