Advice and Opinion

Property industry commentary – 2018 Budget Speech

Budget Finance Generic

Rudi Botha, CEO of BetterBond:

“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. National Deeds Office statistics show, for example, a year-on-year increase of 2,25% in the last quarter of 2017 following two years of declining numbers, and our own statistics* show an increase of almost 11% in bond approvals during that period, indicating a continued rise in registrations this year.” 

However, he says, tax increases were expected in the light of the tax revenue shortfall revealed by the Finance Minister a few months ago (now revised to R48bn) 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.

Herschel Jawitz, CEO of Jawitz Properties:

“The National Budget is as expected, with a focus on reducing the deficit, giving marginal relief to those who need it most, and continuing to directly, or indirectly place a greater tax burden on the wealthy. With an increase in VAT by 1% and the increased fuel levy, together with all of the other increases such as sin taxes, almost all South Africans will have less real disposable income on March 1 2018, than they do today. This is a very tight budget”.

Economic growth remains low at a projected 1.5% for 2018, and there is still a lot of work to be done to fix the damage caused by ex-President Zuma and his administration. Details on the SOEs and how government proposes to fix them were particularly vague. 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”.

“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”.

“While the budget provides no financial impetus for the recovery of the residential market, the key factor of renewed consumer confidence will help to improve property prices and demand in 2018”.

Mike Greeff, CEO of Greeff Christie’s International Real Estate:

Malusi Gigaba’s 2018 Budget Speech has done much to allay the fears of investors and the public by presenting a balanced budget speech set within the framework of the State of The Nation Address. Although there are small changes to the VAT rate and the Personal Income Tax rate, we at Greeff can’t see this affecting the property market. Property continues to be a good investment. A further positive is that duties on the transfer of properties remain unchanged. The budget speech has laid out plans to move South Africa’s economy out of its current stagnation and predicts an increase in GDP growth of 1.5 percent in 2018, rising to 2.1 percent in 2020, paired with a projected narrowing of the budget deficit from 4.3% of GDP in 2017/2018 to 3.5% in 2020/21. The Finance Minister also announced much-needed drought relief to the tune of R6 billion. This is a welcome move and will definitely aid the drought-ravaged areas of the country, in particular, Cape Town.

Gerhard Kotzé, MD of the RealNet:

Following the wave of renewed confidence that has swept through SA in the past few weeks, the Budget has come as a bit of a reality check about how much work there is to be done to fix the damage done to the economy over the past 10 years. And it is always difficult to balance the need for more revenue with the need to boost economic growth … Consequently, we were glad to note that Treasury is not relying solely on increased consumer taxes (VAT, fuel and income taxes) to plug SA’s R48bn hole in tax revenues, having also pledged to cut government spending by R85bn over the next three years. Other measures include higher taxes on luxury goods, alcohol and tobacco and higher death duty on estates valued at over R30m.”

Also encouraging, he says, is 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 to 1,5% and rise to 2,1% by 2020, and that the inflation rate is expected to average a relatively low 4,5%, 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.”

Dr Andrew Golding, chief executive of the Pam Golding Property group:

Given the hand they were dealt, government has performed a delicate balancing act which it is hoped will serve to reignite confidence in investment in South Africa, regain our global credibility and satisfy the credit ratings agencies …  speaking from a property perspective, this is a market which is fueled 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“.

Also positive is the allocation of R6 billion for purposes which include drought relief and to augment public infrastructure investment.”

 “While the increase in VAT from 14% to 15% is unpalatable and erodes consumer disposable income – particularly among lower income earners, it was anticipated and is hoped will go a long way towards offsetting the Budget deficit. Welcome news for lower and middle-income earners is the adjustment of the bottom three personal income tax brackets for inflation“.

It is true however that the 52c a litre increase in levies on fuel will impact across the economy, as rising transport costs have an inflationary, ripple effect“.

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.

Berry Everitt, CEO of the Chas Everitt International property group says today’s 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.”

Jacques du Toit: Senior Property Economist at Absa Home Loans on the affordability of property:

The increase in VAT and the below inflation tax relief on personal income tax, and the increased fuel levies – will have negative impact the consumer finances. This will indirectly impact on property affordability … Any property up to R900 000 is still exempted from transfer duties … Low CPI and the strong rand will increase the possibility of lower interest rates, which can have a positive effect on the property market in the long run.”

 *Commentary in no particular order.