Happy new month, may August be filled with love, joy, peace and happiness.
I am really getting challenged to write daily these days because I have not been travelling for the past month. When I am home , there is just so much happening and with my recent interest in crocheting, time is becoming scares but I will try my best to get back in the game.
A while ago, a friend of mine asked a question whether it is really worth having a housing subsidy. For those that are not familiar with housing subsidy, it works as follows:
Initially it started as the way of government assisting low income earners to be able to afford houses. However, “low income earners” has different meanings depending on where you are but in simple term, it is a financial assistance given by the employer towards the cost of acquiring a house.
This works differently between the government and the private sector. In government, the amount is not a cash settlement to you but it is paid directly to the financial institution. The government will normally calculate how much housing allowance you qualify for and how much the house you intent to buy will cost. To give an example, if your bond if costing N$ 5000 per month and you qualify for the government subsidy for N$2000 per month, you will be paying from your pocket every month N$3000 to the bank.
In the private sector, it works slightly different. We often talk about housing allowance instead of housing subsidy. Your employer in the private sector is mainly concerned about your total cost to company ( i,e how much it cost them to have you on their payroll run for each month ) , hence one is free to structure their salary however they’d like. This often results in employees allocating a portion of their salary to take advantage of the tax deductions that applies to housing allowance. If you have two employees doing the same job and one has a house allowance and the other does not, their total cost to company will be the same, however the employee with the house allowance might receive a high net pay because of the tax savings that comes from having the allowance (all other factors remaining the same).
Whether you should take out housing subsidy or not depends on many factors but the following are some of the key factors to remember:
- You need to look at your affordability assessment without the subsidy and with the subsidy. Remember that if you resign from your employer who was subsidizing your house you will need to bear the full cost of the loan. Do you intend on staying with the same employer for the duration of the bond period ( which is mainly 20 years? ). Are you able to survive without the subsidy? Will your next employer also offer the same benefits should you change jobs?
- One must also take into consideration the restrictions that comes with housing subsidy and the tax rules to ensure that you are not breaching and putting yourself at risk of fines and penalty. One of the common restriction is that you cannot make use of official accommodation ( i,e staying in the government house) and still be receiving a housing subsidy. This is because government house are already rented out at subsidized rent hence you will be receiving double the benefit.
- The other thing about housing allowance is that your allowance cannot exceed a certain % of your salary otherwise it will be considered tax evasion. If you are also receiving an allowance for renting, you should provide your employer with your rental agreement so that you can substantiate your tax deduction.
Is it worth it?
Maybe or maybe not, it depends on how your results for the above considerations are.