Advice and Opinion

The 2019 Budget Speech – the property experts weigh in

South Africa

Herschel Jawitz, CEO of Jawitz Properties, says that the National Budget 2019 announced by Finance Minister, Tito Mboweni, shows just how little financial room the country has to manoeuvre, given the current economy and the state of our finances.

“Consumers will no doubt be worse off for the year ahead as a result of this Budget. With no tax bracket relief, many tax payers will end up paying more tax in addition to an increase in petrol and diesel prices as a result of an increase in fuel levies. With revenue collection under pressure, real change in the financial state of the country is going to come, more than ever, from the government’s ability to deliver on the commitments made by Minister Mboweni. These include fixing SARS, reducing the public sector wage bill and fixing the SOEs. The Minister has made all the right comments about fixing Eskom, however, time will tell how the government will implement the turnaround strategy in the face of political and union opposition”.

“From a property point of view, there have been no changes to transfer duty or capital gains tax, however, the introduction of a pilot subsidy programme for first time buyers is very encouraging. While consumers will continue to face financial pressures as a result of the lack of tax relief, there should be no impact on an already subdued residential market”.

“The real key to any meaningful improvement in the residential market will be consumer confidence. In terms of the Budget, this will be determined by the government’s ability to deliver on keeping the lights on, reducing corruption and focusing on the key components needed to create a growing economy for the benefit of all South Africans. Consumer confidence can turn quickly if the public sees positive signs of improvement. We should be encouraged by what we have heard today”.

Finance Minister, Tito Mboweni’s maiden budget was always going to be tough given the extent of the economic challenges“, says Samuel Seeff, chairman of the Seeff Property Group. “This, with particular reference to corruption and mismanagement of SOEs, not least of which the Eskom debacle, and the shrinking tax base”.

That said, Seeff views the budget as measured and in the best interest of the country right now. While disappointed that there has been no relief for the property sector or for consumers, the budget was largely as expected by the market, he says.

“We expected a bail-out package for Eskom as part of the budget, and in view of this, are encouraged that this is not in the form of higher direct personal or property taxes, although not adjusting the tax brackets will inevitably still cost consumers”.

The property market has had to absorb the effects of higher taxes along with cost hikes in recent years which has manifested in lower transaction volumes and the value of transactions in the upper price bands“, says Seeff. Additionally, the market is feeling the effect of concern about land security and the general outlook for the country going forward.

What does this mean for the property market? While there are many positives, Seeff says the reality remains a fairly weak outlook for the economy with the finance minister adjusting the GDP growth outlook for the year to 1,5%. On the back of this, the property market will remain flat, characterised largely by sideways movement.

“That means that those that “need to buy or sell”, largely below R1.5 million (up to R3 million in some areas) will continue to transact in line with their needs. The favourable interest and bank lending climate means you can sell within a reasonable time frame in this sector”.

“Above this, you find the discretionary market, i.e. those who do not necessarily have to transact. They are subject to the higher transfer duty instituted in 2016 as well as Capital Gains Tax (CGT) and rather than paying over millions that add no value, are simply sitting on the fence waiting and watching how things unfold”.

Mike Greeff, CEO of Greeff Christies International Real Estate comments:

“Calling for sowing seeds of renewal and growth, the Minister noted with great emphasis the need for pruning and plucking at the rot that has attacked the country’s green shoots. As such, the Minister aimed to address the hard facts and figures by not further kicking the can down the road”.

The South African property market can look forward to two major factors in the real estate industry remaining unchanged which are Transfer Duties and Capital Gains Tax. This means whether you’re planning to buy or sell property in 2019, it won’t be more expensive. The announcement to leave these factors unchanged are set to bolster the market ahead of the 2019 National Elections,” says Greeff.

“With the budget deficit projected to narrow from an estimated 4.2% of GDP in 2018/2019 to 4.0% in 2021/2022, the 2019 Budget Speech has forced citizens to take a long, hard look at the reality of their finances. This is a stern but necessary budget that demands South Africans to be more disciplined, prioritise their spending and invest wisely. We have always dispensed this advice to potential homeowners. Property is one of the best possible investments one can make and it requires large amounts of self-discipline in order to work”.

“As highly anticipated, State Owned Enterprises like Eskom will continue to receive fiscal support from on condition of the appointment of a Chief Reorganisation Officer working side by side with the Ministers of Finance and Public Enterprises”.

“South Africa desperately needs Eskom to work. Without it, foreign investors lose faith in the country’s ability to meet production deadlines. Diminished foreign investor confidence is a warning signal for all the other economic sectors. The real estate market is not immune to the ripples of nervousness surrounding Eskom and foreign investors may need to be assured of the power utility’s stability as it could have an effect on long-term property investments in South Africa.”

“Homeowners and those in the middle to lower income bracket who may be looking to buy in future are however expected to feel the pinch with an expected 29 to 30 cents increase on fuel levies, further increasing transport costs for hard-pressed taxpayers”. 

“On a much-more welcomed note, the decision by Treasury to create a special grant for first-time homeowners through its Our Help to Buy fund is sure to boost the South African property market and work in favour for all those looking to buy with a figure of R950 million set aside for the first three years. The property industry can expect to see significant growth as first-time homeowners will take full advantage of the grant”.

Homeowners can breathe a sigh of relief as Treasury will leave personal income tax rates untouched. Leaving VAT unchanged at 15% shows a state cautious about putting increased tax pressures on individuals and businesses as many are still feeling the effects of last year’s hike,” says Greeff.

The Seeff group however, remains buoyed by the commitment of President Ramaphosa to reform the current state of affairs and administration, deal with corruption and maladministration and boost renewed economic growth. As the finance minister said, it is important to realise that there is no quick fix, says Seeff, recovery will be gradual.

The subdued price growth and positive lending landscape mean that if you are looking to find a good buying opportunity, then you may well find it in this market. Although it may be riskier now, you could ultimately see greater return“.

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

“In what was arguably one of the most closely watched National Budget speeches in recent years, Finance Minister Tito Mboweni outlined Government’s plan to boost growth, increase tax collection and reduce debt, with strong attention paid to Eskom and SOEs”.

“A clear thread running through the Budget Speech was a need to focus on improving education and boosting skills development and training, which is a solid foundation on which to build a stronger economy while fostering job creation, as well as a welcome move to meaningfully involve the private sector in various initiatives”.

“In regard to the former, the allocation of over R30 billion for new schools and maintaining schooling infrastructure, subsidised education and training for the poor, R19.8 billion for industrial business incentives, disbursements by the Jobs Fund and allocation to the Small Enterprise Development Agency are all positive moves to foster job creation”.

“Increased spending on infrastructural improvements, including non-toll roads, rural roads and water, and incorporating involvement in the private sector in designing, building and operating key infrastructure assets augurs well for the contribution such projects – and the private sector – makes to transport, convenient access and local economies”.

“Consumers will be relieved that personal income tax rates have not been increased. However, minor increases in tax thresholds and tax rebates for individuals will not fully offset fiscal drag, thereby keeping household finances under pressure. With various measures being implemented to revive SARS capabilities it is hoped that this will ultimately help generate more revenue than further tax increases would”.

“However, further negative news and inflationary in itself, placing an additional burden on consumers, was yet another increase in the fuel levies, which rise by a significant 29c per litre for petrol and 30c per litre for diesel – and includes a carbon levy which will come into effect in June 2019”.

“Positively, the reduction in the bloated public sector wage bill shone some light on the Budget, with an option to take early retirement set to make a difference in the shorter to medium term and certainly over the longer term. This plus the fact that overtime and bonuses will be limited, while the announcement that members of Parliament and provincial legislatures and executives at public entities will not receive a salary increase this year is a step in the right direction”.

“From a housing perspective, while the land expropriation issue is yet to be finalised and clarified, funding for the upgrading of informal settlements and the Our Help to Buy subsidy, a pilot project with R950 million over three years to help first-time home buyers acquire a home are welcome news. Also noteworthy is the support for private sector investment in agriculture via support for emerging farmers”.

“The Finance Minister also noted that there is a need to respond to rapid urbanisation by shifting from ‘horizontal’ development to vertical or ‘going up’, as part of an integrated development plan. This would suggest that government incentives may reinforce the shift towards the construction of more sectional title homes – a trend already evident in many of the country’s major metro housing markets”.

“Overall, the Budget was more or less as expected; what we need now is to see South Africa embarking on a recovery path which will promote confidence and investment, which will have spin-offs for the economy and the housing market across all sectors”.

“We would certainly have liked to see a reduction in the transfer duty which would have served to stimulate property transactions across the board – with the potential to increase volumes and thereby revenue generation for government. And we also hoped for budget policies and incentives to promote eco-friendly building incentives and budget incentives to enable quick and cost-effective building solutions to stimulate the lower end of the market”.

“As far as SOEs are concerned, unfortunately, there is no quick fix for Eskom, with the recent load shedding biting a chunk out of our economy in recent weeks, and which is exerting pressure on expenditure by requiring bailouts.  Clearly finances and the economic outlook have deteriorated since the MTBPS in October 2018, due to a weaker than expected economy, a shortfall in revenue collections and more cash required for SOEs”.

“It is not clear how the ratings agencies will respond to today’s Budget. Through practical changes at Eskom and SARS and by containing the public sector wage bill, Treasury hopes to persuade them that it is doing enough to fix the country’s finances in the longer term”.

“We anticipate that Moody’s is likely to wait until 29 March, the next scheduled date, before announcing any change in South Africa’s rating. With foreigners holding 38% of South Africa’s foreign and local government debt, the country is vulnerable to any adverse changes in investor sentiment”.

Finance Minister Tito Mboweni made his debut National Budget speech in Parliament today. According to Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, the National Budget speech, was predictably conservative – as one might expect within an election year.

There were no announcements made in the National Budget speech that will severely affect homeowners. Similarly, no announcements were made that could potentially stimulate the property market in any significant way either. However, there were enough positive outcomes within the speech to instil a hopeful confidence in the years ahead. As Minister Tito Mboweni himself stated, this is a budget for the future – one in which a seed for renewal and growth has only just been planted,” Goslett explains.

The most important aspect everyone had hoped would be addressed within the speech was that of government’s position on state-owned enterprises. “Organisations such as ESKOM and SAA have been dragging down our currency owing to their financial troubles. It was a relief to hear Minister Mboweni announce that the National Government is not taking on Eskom’s debt. Instead, the government will supply R23 billion a year to support Eskom during its regeneration on the condition that a new Chief Reorganisation Officer come on board to make sure the utility is able to turn itself around efficiently. I also applaud the decision to tighten policy around granting guarantees to all SOEs and remain hopeful that this might go towards restoring investor confidence in our country,” says Goslett.

That being said, more could have been done in order to stimulate the property market. There were no mentions of any changes in transfer duty rates and capital gains tax – a drop in these figures would have translated into higher returns for property investors which could have stimulated the market and encouraged economic growth.

Minister Mboweni also announced that fuel levies would increase by 29c per litre for petrol, and by 30c per litre for diesel. Tax on alcohol and cigarettes will also increase, along with a slight upward adjustment of personal income taxes in the tax-free brackets. These taxes have an important impact on disposable income levels. With less money to spend, more consumers choose to sell and fewer are able to buy, which translates into a buyer’s market and a negative outlook for house price growth,” explains Goslett.

That being said, a total of R950 million will go into helping first-time buyers enter the property market over the next three years. In addition to this, government could have increased the threshold for transfer duty exemption (which is currently at R900,000), as this would have helped more middle-income first-time buyers afford the additional costs involved in purchasing property.”

All things considered, Goslett believes that the National Budget Speech sets us up for a year exactly as the Minister of Finance framed it: a resilient, drought-resistant aloe that will survive harsh external factors. “While there weren’t many announcements that could be considered a cause for celebration for consumers, there were at least no unpleasant surprises. I remain hopeful for stable economic recovery from last year’s recession that will strengthen the property market over time. Investors would do well to seize the gap by purchasing property now before the positive long-term effects of the Budget Speech come into play, causing house price growth to climb once more.”

We now wait with bated breath for May elections. I believe positive sentiment will flow from a smoothly run election and I believe most South Africans just want this behind them now so that they can focus on building their future with some certainty,” Goslett concludes.