National Budget geared to instil confidence

Property professionals are generally upbeat about Budget 2018 and the possible impact on the property market.

Berry Everitt

Berry Everitt, chief executive of the Chas Everitt International property group, says the budget contains some very hopeful elements for SA’s property sector, and is well balanced considering the constraints on the economy.

Overall, he says, the budget is 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 for this to happen, so our outlook for residential property over the next 12 months is distinctly positive.”

Everitt says other important aspects of the budget for the property sector are:

  • Government’s intention to sell off some of the 195 000 properties it owns to raise around R40bn.
  • The allocation of around R15bn to the acceleration of land reform – and the promotion of agricultural development and food security.
  • Drought relief totalling R6bn for the worst-hit cities and districts.
  • Greater financial support for the eight large metros that are home to 39% of the population and account for 50% of all employment and 57% of GDP, as well as several smaller centres that have the capacity to provide significant economic opportunities.

Gerhard Kotzé, managing director of the RealNet estate agency group, says 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.

“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

“Given the hand it was dealt, government has performed a delicate balancing act which it is hoped will serve to reignite confidence in investment in SA, regain our global credibility and satisfy the credit ratings agencies,” says Dr Andrew Golding, chief executive of the Pam Golding Property group.

“The property market is fuelled by sentiment, so a budget that satisfies the above criteria, together with the election of Cyril Ramaphosa as president, 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.”

Golding says the sale of some of the 195 000 government-owned properties, with an estimated value of over R40bn could unlock revenue as well as opportunities for property development and redevelopment.

“And although further detail is still required, the commitment to drive urban and township development and stimulate faster and more inclusive growth bodes well for infrastructural investment and the facilitation and expansion of economic hubs, especially along key transport corridors.

“Also positive is the allocation of R6bn for drought relief and to augment public infrastructure investment.”

Golding says that while the increase in VAT to 15% is unpalatable and erodes consumer disposable income, 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.

“Growth forecasts for our economy appear increasingly positive, and it will become evident in the coming weeks how the credit ratings agencies will respond to the budget.”

Rudi Botha, chief executive of bond originator BetterBond, 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. 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 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.”

Herschel Jawitz

Herschel Jawitz, chief executive of Jawitz Properties, says that, as expected, the national budget focuses 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 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 before. This is a very tight budget,” says Jawitz.

“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 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,” says Jawitz.

Bruce Swain

“While this budget is very austere, it’s what is needed at this point in our economy and Leapfrog Property Group supports the strong measures taken by government to improve the local economy, even though it’s going to lead to consumers having to tighten their belts – hopefully only in the short term,” says Bruce Swain, chief executive of Leapfrog Property Group.

Swain advises home owners to look at their budgets carefully as little luxuries like a good bottle of wine will be adding up and travel will be more expensive – on top of the tax increases.

“It’s going to be more important than ever to know where every cent is going, to ensure that home owners don’t run into financial difficulties,” says Swain.