June’s Real Estate Review
Can you claim your home office as a tax deduction and where are we going with Interest Rates as the economy shows some recovery?
We are nearly half-way through the year and June has been one of the most awkward months so far. On the one hand the early part of 2021 showed a marked indication of economic recovery, worldwide and in South Africa. Then came the third wave, and right now it almost feels as though we are going back to square one as we struggle to deal with the latest surge of the virus, against a partially recovering economy.
Some interesting challenges are looming as June comes to a close. We are going to look at two key topics: Tax Season and Interest Rates:
- Tax season – filing of tax returns for salaried, commission earning and Independent Contractors opens 1 July. If you have worked from home for more than 50% of the time in the last year (due to the lockdown) you could qualify for a tax deduction. The requirement is that a particular section of the home is set up and dedicated to office space and the size of the space is measured as a portion of your house and proportionate costs relating to electricity, rent, cleaning costs etc. may be claimed. Lana Visser (Financial Planner) explains this in some detail and we think it is worth a read https://www.bizcommunity.com/Article/196/512/217175.htmle
- Lower Interest Rates – but for how long? One of the factors contributing to a relatively robust property market against the backdrop of a pandemic and economic downturn has been record lows in interest. What is the position going forward? The inflation rate is sitting at around 4.5% and climbing and economists are beginning to comment on when the next hike can be expected. The time period bandied around is the last quarter of 2021, or maybe 2022. Whilst the latter part of 2020 and early part of 2021 saw a spike in certain categories of property prices, the market could well expect a tapering off in price hikes due to a combination of climbing interest rates in the next year or so as well economic pressures on prospective homeowners in these difficult times. It’s not however clear at this point whether we are looking at a steady but slow rise in inflation or something more dramatic.
Bond Repayments. One of the issues around a lower interest relates to early payment of mortgage loans. Many homeowners have been upping their payments, to take advantage of the lower interest rate to settle some of the Capital balance on their home loan. However, in the Commercial Space, business owners are reminded to differentiate between mortgage loans and overdraft facilities. An overdraft facility is easy to access at any point; a mortgage loan is not the same thing. Banks deal with bonds differently. A business owner could expose themselves to the following complications when attempting to utilise their bond facility as an overdraft.
- The bank will reassess credit risk should the owner want to access their bond facility later on (this could affect future interest rates and availability of the funds). Banks themselves may have shifted their lending position as a result of the pandemic and other economic risks in the market.
- They may not enjoy the same tax deduction benefit. (SARS only allows a tax deduction in the production of income). The purpose for the future claim may not enjoy the same tax deduction the previous drawdown did.
- Access to a bond facilities requires a lot more administration than access to an overdraft and is far more time consuming. The business owner may not be able to access funds timeously. An interesting article covering this is presented by Preggie Pillay in BizCommunity https://www.bizcommunity.com/Article/196/698/216370.html
As a company, we have seen a lot of buoyancy and mixed reactions in the property market. It would seem that there is a resilience and people are anxious to get back into action. Keep warm and stay safe.