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Free land could soon become a reality in South Africa but does the concept of ‘free’ land really exist? Strangely enough, our government, who are pushing for this have as much to lose as anyone else.

Government’s conundrum

No doubt about it. Government is stuck between the devil and the deep blue sea.
2019 is a big election year. Land, as we have all seen, is an emotive issue. South Africans have demanded land and government has listened.

  • Fail to address the issue and they run the risk of losing the 2019 general election.
  • Address the issue and they lose billions of Rand in current as well as future income from property owners.

Every one of us deserves a home regardless of background. After all we’re all South Africans, something which many of us have forgotten.

Obviously we cannot have a situation where the elite few are unwilling to share with everyone else, but what if this isn’t the truth? What if the real issue is not a political but an economic one?

Think about this for a minute.

In a growing and vibrant economy:

  • Education is prioritised which makes everyone employable
  • Everyone has a job as a result.
  • Everyone has the same access to credit and therefore;
  • Everyone can buy land based on affordability.

Of course none of this would work without foreign investment. Below are some of the reasons we’d invest in a foreign country:

  • It’s cheaper to do so than invest in our own.
  • the hosting country isn’t taxing me as heavily as my own country is
  • the labour force is well trained and cheaper to employ than people in my own country
  • the country is politically stable which means my investment is safe.
  • the country Is relatively corruption and crime free

Unfortunately, as a country, we have failed our children by not giving them access to quality education and we;ve failed to attract foreign investment which means no jobs.

How will government lose if land was free?

If you think about it, we’re fooling ourselves if we think we own land outright – none of us do.

Let’s argue that you own a fully paid up home. You’ve settled the bond years ago so it’s yours, right? However what about those slips you get in the mail every month for rates and taxes owed to your local municipality? What would happen if you decided to stop paying those rates and taxes?

And therein lies the problem

Give the land to the unemployed, and what happens to local government’s stream of income from these properties?

  • Where will the government find the money to pay municipal employees every month?
  • Where will municipalities find the money for every day expenses such as refuse removal & pothole repairs? The rates and taxes dry up!

Forget about rates and taxes though, for a moment. There’s another tax issue which you should be worried about!

Here is where landowners have always lost and where government stands to lose

If it really was as simple as willing seller-willing buyer, then owning a home would be straightforward. The bottom line is government have always enjoyed a slice of the pie every time you buy.

Here is a list of costs which add absolutely no value to either the buyer or the seller:

  • Transfer duties (paid when transferring the property from old to new owner)
  • VAT (If you buy the property straight from the developer)
  • Conveyancing fees based on the value of your property

We found the following example in the 2018 edition of The South African Financial Planning Handbook. Please remember that this example is based on 14% VAT

Imagine buying a home for R2 million with a bond of R1,6 million registered against it.

Bond registration costs:

  • Bond registration cost including VAT – R22,686
  • Bank initiation fee including VAT – R5,985
  • Post, petties, FICA, etc. – R1,200
  • A total of R29,871 to register your bond

Additional property transfer costs

  • Property transfer cost – R25,650
  • Transfer duty – 60,500
  • Posy, petties, FICA – R1,200
  • A total of R87,350 to transfer your property

Purchasing a home is going to cost you R117,221 more than you thought it would, which shows that a lot of people are making money each time you buy a property. Free doesn’t even come into the equation.

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Two things are quite apparent:

  1. The government knows there is no such thing as free land. They tax you on your property when you buy it and they tax you on it for as long as you own it. This isn’t something new!
  2. Without ongoing property taxes, municipalities go bankrupt (aren’t most of them already?). Service delivery grinds to a halt and thousands of municipal workers are unemployed

Clearly owning land costs money. The only way for most of us to get hold of that money is by having a job. The more people with jobs, the more money those people will have, and the more chance of them owning their own home.

How do you do this when

  • The job market is shrinking
  • Our population is growing and
  • Education standards are on the decline leaving many of our youth unemployable and facing a dismal future.

The government, it seems, has run out of two things – time and ideas – and it’s going to cost every one of us.

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