The average age of first-time buyers in South Africa has risen from 24 to 36 over the past 20 years according to bond originator, Betterbond.
Often the younger generation finds themselves lacking the financing, experience and savvy to take the first step into the property market.
Because of this, there is a growing trend of parental intervention that is better enabling their entry into the property sector, said Mike Greeff, CEO of Greeff Christie’s International Real Estate.
Greeff said that this assistance is usually given through the gift of a deposit, an interest-free loan, buying in a trust or by acting as surety for the loan.
“With an increased general cost of living and a fluctuating economy, we are seeing more cases of parents assisting their children to take that step and pave the way to their independence,” Greeff said.
“Youngsters sometimes face the challenge of not having a credit record or struggle to come up with the deposit for their first home. Parental intervention gives them added stability and the security of knowing that they have the support of their families.”
While it may be an amazing act of kindness for parents to gift their children the deposit for a new home, parents should keep in mind that the South African Revenue Service (SARS) only allows up to R100,000 per year as a donation, said Greeff.
“Any part of the donation greater than R100,000 is taxed at 20% in order to comply with the Donations Tax with the scale sliding to 25% on the donation amount that goes beyond R30 million,” he said.
Greeff said that parents may instead choose to purchase the property outright on behalf of their children with the written or verbal proviso that they repay the amount monthly at a much lower interest rate or sometimes without any interest added to the capital amount.
In this instance, parents gain an asset temporarily, while children learn the responsibility of committing to monthly repayments.
Parents can also be more understanding should you not be able to repay the entire amount the month that your car needs an engine overhaul, he said.
“We are certainly seeing an increase in the trend where parents are assisting their children. Currently, this is happening by way of parents acting as surety for the bond their child is trying to secure and are paying the balance of the purchase price,” said Charles Silbert of Greeff Christie’s International Real Estate.