Making that first foray into the property market can be a serious challenge for first-time buyers.
Often the younger generation finds themselves lacking the financing, experience and savvy to take the first step into the property market. Luckily, there is a growing trend of parental intervention that is better enabling their entry into the property sector.
Whether through the gift of a deposit, an interest-free loan, buying in a trust or by acting as surety for the loan, the older generation is showing that they care by making the younger generation’s property ownership aspirations a reality.
Mike Greeff, CEO of Greeff Christie’s International Real Estate, shares his thoughts on the trend of generational property collaboration.
“Part of being a parent is the desire to do the best for your children and to give them the best possible foundation in life. Seeing your children become property owners gives you a feeling of accomplishment and pride,” he says.
“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. 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.
Any part of the donation greater than R 100 000 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.
Parents may 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. Parents gain an asset temporarily, while children learn the responsibility of committing to monthly repayments.
Parents can also be more understanding should a child not be able to repay the entire amount the month that their car needs an engine overhaul, for example.
“It is sometimes easier for parents to just be the safety net for their children’s property endeavours by signing up as surety for the loan,” says Charles Silbert, Greeff Christie's International Real Estate Area Specialist in Claremont Upper and Kenilworth Upper. Silbert is currently busy with a sale where the parents are giving financial assistance.
“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,” he explains.
Getting into the property market may seem like a challenge that most of the younger generation feel is impossible to achieve, but with a little help from their parents or the older generation, buying a home may be well within their reach.
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