The finance minister delivered a “tough but hopeful” budget yesterday. Some of SA’s top property experts weigh in with their opinions on how it will affect the economy and market.
Richard Gray, Harcourts Africa CEO
Gray feels that the budget is balanced, with a focus on rebuilding. He did however express concern about the effect the VAT increase from 14% to 15% would have on the property market.
“VAT is payable on the transaction of a home purchase and in some cases included in the price of the home. Although one percent seems like a very slight increase, transactions like high value commercial properties or development investments might feel the increase far more than that of the middle to lower end of the market,” he said.
Gray is also of the opinion that rising food costs, fuel costs and tax hikes would put the man on the street under financial pressure, which might have an effect on the lower end of the rental market.
Samuel Seeff, chairman of the Seeff Property Group
It was always going to be a tough budget and the fiscal deficit that needed to be funded could only come from higher taxes, says Seeff.
He says that while an improved economic outlook is welcome news, rising taxes for working households is simply unsustainable for an economy that needs to accelerate to address the challenges in the country.
Some of the tax hikes that will affect consumers and property buyers include:
- VAT hike of 1%, from 14% to 15% which will affect everyone, save for the basket of exempt goods
- Marginal increase in upper income tax, but more relief for lower tax bracket
- Fuel levy hike which will of course have a knock-on effect on transport and living costs
Seeff says that it is critical for tax payers to know that their hard-earned tax money is spent where it is intended. The country can no longer afford the disaster that is the State-Owned Enterprises because it has brought us to the brink of financial ruin. The bloated cabinet and state expenditure needs to be brought under control with some urgency.
By taxing the very people who are growing the economy, you are making it very difficult for business owners and entrepreneurs to feel positive about investing further into the economy. Uncertainty about property ownership is also concerning.
Although the succession of Cyril Ramaphosa as ANC and SA President has seen the mood in the country turn increasingly positive and his SONA 2018 address has sent the right messages, we need to see this translate into action, says Seeff. We need a return to economic and political stability so that investors can feel confident about investing and growing the economy.
The effect of weak confidence has been evident in the property market, he adds. Since last year there has been an accelerating decline in activity as those who do not need to sell or buy, are holding back. This means fewer transactions and a decline in transfer duty paid to government.
He adds that the property sector is a vital contributor to the economy, jobs and prosperity, but it needs a good economy to thrive.
Gerhard Kotzé, MD of the RealNet estate agency group
Kotze says that the budget reflects how much work needs to be done to fix the damage done to the economy over the last 10 years.
He says that the budget is likely to prove positive for the property market in the medium to long-term, even though some of the tax hikes may be difficult for consumers to deal with in the immediate future.
Kotze is also encouraged by the renewed focus on two things that are essential for the health of the real estate market: substantial improvements to SA’s education system and youth employment initiatives. R1-trillion has been allocated to education over the next three years, with only R57bn of that going to fee-free tertiary education.
With a better-educated and motivated workforce, SA has the capacity to be highly competitive and successful in global terms over the next few years, and that will naturally lead to more and better jobs – and more demand for homes and rental properties.
More good news for property, says Kotzé, is the fact that the economic growth rate is expected to pick up this year, and that the inflation rate is expected to remain low, especially if SA continues to find favour with foreign investors as it has done in recent weeks and the rand stays strong.
“Higher growth will once again raise the chances of finding employment, especially if the new investment is channelled into infrastructure development and additional support for the agricultural, mining, manufacturing and tourism sectors, as promised by President Ramaphosa in his recent State of the Nation address.
“And lower inflation might even mean an interest-rate cut or two this year, making it easier for more consumers to save deposits and to afford the monthly bond repayments on their own homes.”
Herschel Jawitz, CEO, Jawitz Properties
Jawitz feels that this is a very tight budget that will see almost all South Africans have less real disposable income.
“Jawitz Properties welcomes the comments on the Integrated Urban Development Framework to improve the quality and productivity of our urban areas, which will play an important role in preserving and improving infrastructure in these areas, as well as enhancing property values. The key will be the implementation of these initiatives,” he says.
From a residential property point of view, there are no changes to transfer duty, the capital gains tax exemption on a primary home or the effective tax rates for capital gains.
“From a residential property point of view, there are no changes to transfer duty, the capital gains tax exemption on a primary home or the effective tax rates for capital gains. The government has got little or no room to move, and with property price growth and the volume of sales at current levels, there was no expectation that transfer duty thresholds would be increased. The estate duty on estates above R30 million has been increased, which may impact on the luxury end of the market once again,” he says.
He is of the opinion that renewed consumer confidence will be a key factor in improving property prices and demand in 2018.
Dr Andrew Golding, chief executive of the Pam Golding Property group.
Government has performed a delicate balancing act which will hopefully reignite confidence in investment in South Africa, regain our global credibility and satisfy the credit ratings agencies, says Golding.
“Speaking from a property perspective, this is a market which is fuelled by sentiment, and as a consequence, a budget which satisfies the above criteria – on the back of the election of President Ramaphosa – is expected to go a long way towards reaffirming investor confidence in real estate.
“South Africans continue to demonstrate an increasing appetite for home ownership which is to be encouraged as it helps provide security of tenure and financial security for the future.”
Dr Golding says an interesting aspect of the Budget Speech is the proposal that some 195 000 government-owned properties, with an estimated value of over R40bn, would either be better used or sold in the short to medium term, which could unlock revenue as well as opportunities for property development and redevelopment.
“And while we await further detail, the commitment to drive both urban and township development and stimulate faster and more inclusive growth augurs well for infrastructural investment and the facilitation and expansion of economic hubs, especially along key transport corridors.
While growth forecasts for our economy appear increasingly positive, it will become evident in the coming days and weeks as to how the credit ratings agencies will respond to the Budget.
Rudi Botha, CEO of BetterBond
Botha says, “The increases in VAT, income and fuel taxes are clearly disappointing from our point of view because they will limit the ability of ordinary households to qualify for bonds and afford their own homes.
“This is a blow for a real estate market that has been turning positive for the past few months,’ he adds.
However, he says, tax increases were expected in the light of the tax revenue shortfall and looking at the bigger picture, this Budget is clearly designed to do the essential job of proving to investors that SA has financial discipline and stability.
“This is the only way we are going to attract the funds we need from both foreign private investors and local investors who have been sitting on cash to re-fire SA’s economy, boost the growth rate and start creating new jobs.
“And in the longer-term, increased employment is the real key to sustained growth and development in the real estate sector, so BetterBond also strongly supports the forthcoming Job Summit and Youth Working Group announced by President Ramaphosa during his recent State of the Nation address, as well as the Budget allocations for internship incentives and the establishment of a Youth Employment Service.
“We also applaud the vision behind the new focus on educating our youth to be full players in the Fourth Industrial Revolution, while also seeking to re-vitalise SA’s manufacturing sector and so immediately start to create opportunities for entrepreneurs and lower-skilled workers who have been let down over the past decade by our mismanaged state education system.”
Botha notes that this Budget should also help SA avoid a downgrade to total junk status – and that this should underpin the rand, keep inflation down and obviate the need for any interest rate increases in the near future, which will be a further positive for property going forward.
Berry Everitt, CEO of the Chas Everitt International property group
Everitt believes that the budget contains some very hopeful elements for SA’s property sector, and is well balanced considering the current constraints on the economy.
“Despite implementing the widely-expected VAT increase, for example, Treasury has at least taken care to limit its potential negative effects on the poorest households by announcing above-inflation increases in old-age and disability pensions as well as child grants.”
Overall, he says, the Budget is also supportive of the green shoots of economic growth that have begun to spring up in recent months as consumer and business confidence in the country’s future improved. Significant allocations have been made, for example, to encourage youth employment, support small businesses and revitalise the mining, agricultural and manufacturing sectors.”
At the same time, the commitment to reshape the public service and cut government spending by around R85bn will hopefully stave off a ratings downgrade to total junk, help to attract more private sector investment and boost the employment rate even faster.
“More jobs will mean more property sales and rentals, and rising investor confidence will also help to keep inflation in check and could even mean some interest rate cuts this year. That would of course make it easier for more people to qualify for home loans and buy their own homes, and our understanding is that the banks are keen to see this happen, so our outlook for residential property over the next 12 months is distinctly positive.”