Minister Tito Mboweni’s 2021 National Budget Speech has received mixed reactions from the property industry however, many agree that it will have an indirect impact on the local property market during 2021.
“The property market is indirectly affected by the overall performance of the economy” comments Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett.
“Leading up to the Budget Speech, I remained hopeful that it would be allocated wisely and in such a way to facilitate job creation and economic recovery. While some of what was promised can help towards stimulating growth and positively impacting the local property market, other decisions fell short and are unlikely to achieve their desired outcomes”.
Increasing the personal income tax brackets or thresholds will help lower to middle-income earners which will hopefully provide access to greater disposable income. However, says Goslett, the lowering of the corporate tax rate to 27% is unlikely to stimulate reinvestment or employment as it is not an aggressive enough stance. “I would also have liked to have seen more creativity around possible support or tax breaks for entrepreneurs and / or small to medium enterprise owners,” he says.
Goslett is also unconvinced by the growth forecast predicted in this speech. “In previous years, there have been promises of a 3.3% growth, but we have not hit that target for years. There is much ground to make up for the lack of growth over the previous years and based on the lack of available revenue to invest, it seems unlikely that we will see that growth rate happening in the year ahead”.
“With the massive tax shortfall for 2020 and the enormous debt that South Africa will have to service going forward, there is not much room for stimulation. While I am glad to hear that there are no further bailouts for other state-owned enterprises, we are still paying for the sins of wasteful expenditure and corruption in prior years. It would have been tough without that waste. Now it is a mountain to climb”.
Welcoming the focus on economic recovery, relief for households, vaccination and the various reforms proposed (including corporate tax, the public sector wage bill, and State-Owned Enterprises), Samuel Seeff, chairman of the Seeff Property Group says Finance Minister, Tito Mboweni, presented a ‘positive budget’ under challenging circumstances.
“We are delighted that instead of facing tax hikes, National Treasury is providing tax relief in the form of a 5% adjustment in the personal income tax brackets which should bring relief for low to middle income earners especially” he says.
Seeff believes that there is a possible missed opportunity in transfer duties, including the R1 million exemption threshold remaining unchanged. With some relief here, especially at the higher end where transfer duty was increased three years ago, could have gone a long way in driving higher sales in the property market and in turn, higher transfer duty revenue and economic contribution.
“While Capital Gains Tax and VAT remain unchanged, consumers and household budgets will need to absorb increases such as the 15.63% electricity hike from the 1st of April along with a 26c per litre increase in the fuel levy which will affect their cost of living and eat into household budgets, offsetting some of the personal tax savings provided”.
The bank lending climate remains favourable for qualifying homebuyers but sellers on the other hand will need to continue pricing competitively says Dr Andrew Golding, chief executive of the Pam Golding Property group.
From the property market’s perspective, is what the Budget will do to address obstacles to economic growth and to boost business and consumer confidence. Tax relief for both individuals and businesses will provide a boost to confidence levels – particularly as possibly significant tax increases were predicted as possible, by some commentators. Government’s ongoing commitment to fiscal consolidation should also be well received by the ratings agencies and investors.
“Of importance is investment in infrastructural improvements – a factor which in turn has a direct impact on housing market sentiment – and it is hoped that the R791.2 billion allocated to infrastructure investment will be swiftly put to good use, not only in terms of roads, bridges and dams but the pressing need to get our country’s rail operation network repaired and fully up and running once more. Without effective transport networks, industry and individuals alike are negatively impacted, as is our economy” he says.
“However, on the back a recent fuel price hike, a further fuel levy increase of 27c per litre will act as an additional financial burden on the economy”.
“While the residential property market has in recent months rebounded to some degree, consumers remain under economic pressure and it is hoped that initiatives taken by government soon will help offset the ongoing economic impact of the Covid-19 lockdowns”.