What impact will the 2019 Budget have on the property market?

Few property experts expected the 2019 National Budget Speech to herald dramatic changes for South African homeowners so close to the general elections, so it came as little surprise that the most direct influences on the property market – transfer duty and capital gains tax – received no mention whatsoever during Finance Minister Tito Mboweni’s speech.

Despite this, the Rawson Property Group’s Regional Manager for Gauteng, David Jacobs, says the new budget will still affect the residential and commercial property markets.

“The results, while far from dire, are expected to prolong the current market slowdown that has been suppressing property price growth, nationwide,” says Jacobs.

“Although the 2019 budget is a little gentler on the public pocket than 2018’s bombshell, it’s still going to be a tough one for consumers, and property affordability will be an ongoing issue as a result,” says Jacobs. “A decrease in transfer duty and capital gains tax could have offered some relief in this, but I don’t think anyone is too surprised that that didn’t happen.

“We were surprises at the decision not to increase income taxes, although keeping the tax brackets unchanged does result in a mild effective increase due to inflation. Sin tax increases were substantial, but things could definitely have been worse on the income tax side,” says Jacobs. “I do believe that South Africa’s mid- to high-income earners have become quite resilient to a higher tax burden. They’re planning their household spend more effectively and are well prepared to handle property purchases and rental expenses.”

He believes it will be more difficult for people to save up for big expenses like property, and this will decrease market activity. However, he says the budget’s focus on industrial business incentives and small business incubation programmes will help stimulate job creation and put some money back into South African pockets.

“This should help stimulate commercial and residential property markets, in time. Another potential source of stimulation for the property market is the planned increase in community development announced by Minister Mboweni.”

According to Jacobs, improving the infrastructure and amenities of underdeveloped communities will do much to improve housing demand in areas with previously limited buyer appetite.

He says the fact that land expropriation without compensation did not make an appearance in the 2019 budget speech may be an unexpectedly good sign for investors. Jacobs says the prioritisation of agricultural land reform over expropriation indicates a healthy attitude of caution from an often-hasty government.

He believes that overall the budget is unlikely to have a detrimental effect on the property market.

“Realistically, we’re not going to see massive growth in property values, but I think it’s equally unlikely that we’ll see a huge decrease in the number of unit sales,” he says. “Price stabilisation will continue, buyers will remain in the driver’s seat, and there will be excellent opportunities for value-for-money purchases for those ready to take advantage.”

Dr Andrew Golding, chief executive of the Pam Golding Property group, says 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.

“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 bodes well for the contribution such projects – and the private sector – makes to transport, convenient access and local economies.”

He says 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, 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.

“We would have liked to see a reduction in the transfer duty which would have helped 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.”

According to regional director and chief executive of RE/MAX of Southern Africa, Adrian Goslett, the National Budget speech was predictably conservative – to be expected in an election year.

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

He believes more could have been done to stimulate the property market – such as reductions in transfer duty rates and capital gains tax, which could have stimulated the market and encouraged economic growth.

“On the positive side, 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 from R900 000, as this would have helped more middle-income first-time buyers afford the additional costs involved in buying property.”

Rudi Botha, chief executive of bond originator BetterBond, says: “The most exciting aspect of today’s Budget announcement for us was the clear indication from Finance Minister Tito Mboweni that the government is in favour of private property ownership – despite the ongoing concerns around a constitutional change that would more easily enable land expropriation without compensation.

“Indeed, in support of private ownership, the Budget specifically allocates R3.7bn over the next three years to assist emerging farmers who wish to buy land – and allocates R950m for the new Help-to-Buy subsidy for first-time homebuyers.

“We wholeheartedly support these moves as well as the news that R14.7bn of funding has been brought forward for two new grants to assist in the upgrading of informal settlements to ensure that residents are provided with basic services. This will go a long way to improve the basic living conditions of millions of people.”

Berry Everitt, chief executive of the Chas Everitt International property group, says: “Given the current state of SA’s economy, we are not surprised that there was no specific relief for property buyers in the form of a transfer duty reduction or even an increase in the threshold. But we believe consumers will breathe a sigh of relief at the news that there will be no VAT or personal income tax increases this year, especially since they are facing another increase in the fuel levy and higher electricity costs.

“In addition, we applaud Finance Minister Tito Mboweni and Public Enterprises Minister Pravin Gordhan for coming up with a creative solution to ensure that SA taxpayers don’t have to pay off Eskom’s entire R400bn debt. As the public, we will hopefully only have to foot the bill of R23bn a year for the next three years to ensure that Eskom reconfigures itself – under tight supervision – and is then able to pay off its own debt.

“Similarly, we were pleased with the announcement that government guarantees for the debts of other SOEs are to be more strictly enforced, and that strategic equity partners will be sought where necessary to ensure that certain SOEs are sustainably managed.”

The budget also tackled two other thorny issues, he says, these being the need to fix SARS to ensure efficient revenue collection, and the need to shred the massive public sector wage bill. “As it is, there is a shortfall of about R15bn a year in tax collection, but the minister’s plans to bring back the large business unit, create a new illicit business unit and tackle cross-border tax evasion are encouraging. Even more so is the news that national and provincial public sector compensation will be cut by R27bn over the next three years – and that legislators will not be getting a salary increase this year.”

“Such issues may not seem relevant to real estate, but they are very much so, in the sense that the property market can only thrive in a climate of growing confidence among investors, rising economic growth and increasing employment. We believe this budget will set us on the right road to reach this scenario, and meanwhile we welcome the R3.7bn allocation made to assist emerging farmers to acquire land, and the R950m allocated to the new subsidy scheme for first-time buyers.”

Gerhard Kotzé, managing director of the RealNet estate agency group, says: “According to the budget announcement, SA can look forward to a lot more high-rise housing developments in and around its major metros as part of government’s integrated strategy to prepare for the future and provide affordable accommodation for a rapidly urbanising population.

“This is exciting news as it has the potential to bring thousands of people within easier reach of the jobs and amenities that urban centres offer, while saving on transport and making better use of existing infrastructure and services. It will also be much easier and more cost effective for government and its private sector partners to upgrade and densify existing water, power, communications and public transport networks than to lay miles of new pipelines, roads and cables.

“Also very positive from the real estate and housing point of view is the news that R14,7bn of government spending has been re-prioritised to give grants for the improvement and upgrading of existing informal settlements, that R30,5bn is to be given to SANRAL to spend on non-toll roads and that the Development Bank and Infrastructure Fund will disburse more than R500bn over the next few years on water supply, solar geyser, student housing and other infrastructure projects – and hope to leverage much more than that as they develop public-private partnerships with both local and foreign investors.”

Government is obviously hoping, he says, that such projects will be the key to the economic and employment growth that SA so urgently needs to achieve, along with the stabilisation of its State-Owned Enterprises. “And on that score we are also very encouraged by today’s announcement that SA’s taxpayers (via the government) are not going to be held accountable for Eskom’s R419bn debt – and that bailouts will probably also not be forthcoming for other SOEs like SAA, the SABC, Denel. Instead they will be required to reconfigure themselves into profitable entities and take on private sector partners where necessary.”

Herschel Jawitz, chief executive of Jawitz Properties, says the national budget speech shows just how little financial room the country has to manoeuvre, given the current economy and the state of its 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 in the budget,” says Jawitz.