In its simplest form, the South African National Budget, delivered by the Minister of Finance and determined by the National Treasury, is a practical roadmap by which the government’s plans and policies are translated into rands and cents.
In a country like South Africa, which has a wealth of economic diversity and a high unemployment rate, a Budget must consider the need to address the underprivileged sections of society and facilitate financial inclusion. The Budget, therefore, impacts every individual and economic sector, not least of which is the property sector, which contributes some R191-million to the country’s gross domestic product (GDP), which is a monetary measure of the value of all the goods and services produced.
In terms of GDP, the property sector is grouped with finance and business services. It is considered one of the most significant contributors to the economy largely through the raising of mortgages and bond registrations, residential investment, and spending on housing services. Therefore, whatever a yearly Budget introduces directly impacts a consumer’s ability to afford to enter, stay in, or invest in the property market.
How the Budget works
The Budget set by the Treasury is presented every February accounts for three years. It runs in a continuous financial cycle from April to March, with funds collected from various sources, including taxation, non-tax revenue that may come from the sale of capital assets, financial transactions, and loans. However, the state’s largest revenue, is from taxes derived from individuals and businesses and VAT.
To help us better understand the significance and workings of the Budget on the property sector is Dawie Roodt, Chief Economist at the Efficient Group, who explains that in determining the Budget, Treasury is required to review the past year.
“Prevailing economic conditions change. Consideration is given to how much tax was and can be collected, where and how money was and can be spent - and on what - all of which encompass the needs of the state and its economic policies. The state is the biggest player in the economy, and the Budget indicates where the state gets its money, what it spends it on, and how much the state borrows. This obviously changes annually to account for a number of differing variables,” says Roodt.
“For example, the state may be borrowing more or less from different sources, could be spending more on some items and less on others. The effects of these factors mean taxes may increase. For the property sector, such tax modifications can have a massive impact, especially if there are changes to capital taxes, which will directly affect property prices.”
The latest two interest rate hikes, in a way, are a perfect example of how tax/interest changes impact absolutely every link in a supply chain, whether it’s services or products. “Any hike in a generic rate can potentially sink an individual or business,” says Roodt, who, in summary, provides four key Budget factors that estate agents should pay attention to:
- What taxes are amended
- Where will the state spend more or less
- Where will the state borrow from (impacts on interest rates)
- What is revealed by the Minister of Finance relative to the government’s expectations regarding growth, interest rates, etc
Predictions
For 2022, Roodt predicts that the driving highlight of the forthcoming Budget will be “surprisingly strong tax collections, mainly due to a strong commodity cycle, unsustainable and rising levels of state debt, and the possible introduction of a more permanent type of additional grant.” The latter is targeted at the unemployed, which, if set at R350 a month as per the World Bank recommendation, could cost SA in the region of some R40-billion a year, and that will significantly impact the Budget.
Nick Pearson, General Manager of Tyson Properties, says that this year’s Budget speech is going to be particularly important because it comes off the back of a very difficult period in the history of our country. “Although the property market has done well over the past year, if we do not start seeing growth in the economy, investors are going to be less bullish. You must remember that property investors are speculating and looking for potential growth, and the Budget always influences this process, negatively or positively. The Budget also brings about movement in the market, and most importantly, directs sentiment in the local and international buying force.”
Pearson makes the point that sentiment among international buyers, who are not necessarily buying out of necessity but rather to get their foot in the door of the SA property market, is a huge contributor to property movement, as is that of the first-time homebuyer market. “Sentiment becomes glaring clear relative to property valuations as well,” he says. “In a recession, a positive budget has the ability to stabilise property valuations and set forth a motion of positive growth, but on the flip side, it also has the ability to set in motion negative property valuations.
“What we need to come out of the 2022 Budget is positive economic growth that is in line with other competing emerging economies. We also need to see positive progress on economic reforms, making it easier for South Africans to do business promoting capitalism and for foreign investors to enter the market,” concludes Pearson.
Private Property comments
Carl van den Berg, Private Property’s Business Development Executive, has concerns for the over-burdened taxpayer. He says that along with other rising costs, including fuel, power and interest rate hikes - and as is the case for all emerging markets - the property sector is feeling the weight of a sluggish economy. “Fortunately, the sector has come off the back of an incredibly strong year, aided by the repro rate cuts that followed the first waves of Covid-19 and lockdowns.
“We have seen significant activity as a result, in the first-time homebuyers subsection, particularly with properties priced below R1.5-million. Now, we are in a rate hike cycle; we expect the repro rate to further increase by up to 0.75%, which is likely to start culling the housing market.
“In order to support residential sales and ensure more people have access to their own homes, we hope to see Treasury considering increasing the threshold under which no transfer duty is payable,” says van den Berg.
“Private Property is also cognisant of the tremendous adaptations that estate agents have had to make in the past two years, inclusive of a deeper adoption of technology. It is our intention to always support their marketing efforts and assure them of our continued commitment to connecting them to buyers seamlessly.”