Weekend Argus (Saturday Edition)
First-time buying expected to slow down in tough times ahead
National Budget helps restore confidence in South Africa, say agency bosses
THE NATIONAL budget was an inclusive budget that clearly focused on restoring confidence in South Africa’s economy locally and abroad, according to Dr Andrew Golding, chief executive of the Pam Golding Property group.
And Samuel Seeff, chair of the Seeff property group, says that Finance Minister, Pravin Gordhan’s budget is a measured budget that has delivered positive sentiment so necessary for the economy and one that should reaffirm the underlying strength of the property market.
Transfer duty on property sales above R10 million is to be raised from 11 to 13 percent, which in essence represents a form of wealth tax, coupled with an increase in capital gains tax.
Golding, says: “Although the increased transfer duty and capital gains tax are not welcome news for the property market and may to some degree dampen sentiment, generally the budget was expected to present a far more austere scenario.
“From a consumer and property market perspective, it was positive to note the relief afforded to lower and middle income earners, providing some measure of buffer against the rising costs of fuel, rates and other municipal tariffs.”
Golding says a real upside in the budget is the assertive stance taken in regard to fiscal consolidation and containment of expenditure, which is reassuring in the light of the imperative to stabilise the economy and demonstrate commitment to fiscal prudence, which is critical to investors.
“Increased investment in tourism, cities and infrastructure projects bode well. It will help unlock opportunities for increased economic growth, allow easier access to employment in key hubs and opportunities for home ownership.
This includes R62 billion allocated for housing subsidy programmes and R34bn for bulk infrastructure and residential services in metropolitan municipalities,” says Golding.
Seeff says: “The tone was very positive and the government and the minister should be congratulated for showing commitment to the country and economy and kicking the fiscus off on a positive note.
“On the plus side, there is the added R5.5bn relief in personal income tax for lower and middle class income earners. This will provide some relief against rising costs and inflation and encourage home ownership.
“The only real concern we have is the hike in transfer duty at the upper end of the market for the second successive year. Based on what we have seen following last year’s hike, we would reiterate our concern that rather than generate the additional funds sought, it decreases the incentive to sell and trade in the market.,” says Seeff.
In a market such as Cape Town, the R10m- plus sector affects whole areas. The Atlantic seaboard and City bowl for example contribute about a third of the total annual value of property sales for the metro. About 40 percent of the almost R7bn traded across the Atlantic seaboard and City Bowl falls in the R10m-plus price sector, so it is quite a sizeable market, says Seeff.
“Only time will tell whether minister Gordhan has done enough to create confidence and positive sentiment and whether we will prevent the looming junk status downgrade. The recent recovering strides taken by the rand though does give us encouragement,” says Seeff.
“The government’s willingness to work with business, the encouragement of the private sector to get more involved in projects with the government, new growth sector planning and even the news around perhaps privatising aspects of SAA, all bode well for the eco- nomy and we are certainly feeling positive today.
“Follow- through will be vital.”
Adrian Goslett, chief executive of RE/MAX of Southern Africa, says that throughout Gordhan’s speech emphasis was placed on igniting inclusive growth and taking corrective steps to ensure that South Africans don’t find themselves financially worse off.
He says it’s a good thing for the economy that Gordhan won’t support ongoing bailouts of state entities.
This will ensure that the state entities are held financially responsible for any mismanagement of funds. Failing state entities are to be terminated and the surplus will be transferred to the balance sheets of strong entities that have the potential to grow.
According to Goslett the R62 billion housing subsidy will be an extremely good thing for consumers in the affordable housing market, which is growing exponentially.
“Another element that will positively affect the affordable housing market is the personal income tax relief for low income earners. This will essentially put more money in the pockets of these individuals and more people will be able to afford homes,” says Goslett.
Shaun Rademeyer, chief executive of mortgage originator BetterLife Home Loans, says Gordhan’s priority was to do everything possible to avoid SA’s credit ratings being downgraded to junk status, and this budget was an admirable attempt to do just that.
“At the macro- economic level, it is structured to contain the all- important national
though budget deficit to 3.2 percent of GDP, which is higher than the 2.6 percent that was predicted for this year but down from last year’s 3.8 percent. It shows that the country is going in the right direction reducing expenditure in relation to revenue.
“It also honestly addresses the concerns of investors and ratings agencies about public sector corruption and wastage and puts in place many measures to cut the government’s spending on the wrong things, while addressing the urgent need for economic growth and job creation by making huge fund allocations to infrastructure development, urban transport projects, education and various business support mechanisms.
“Consequently, we believe it will prove to be the confidencebooster so critical to South Africa’s economic future.”
However, he says, the disappointments for the residential property market include the increases in capital gains tax and the transfer duty on luxury properties costing more than R10m, as well as the limited fiscal drag relief that has been applied to personal income tax.
“The increase in the fuel levy, the introduction of a new tax on tyres and higher levies on various commodities are bound to increase food costs at a time when they are already high due to the drought, and when many households are battling to deal with higher interest rates on existing debts.
“This will limit the ability of households to qualify for home loans, and we expect a slowdown in first- time buying as a result – unless and until the economy starts to turn around,” says Rademeyer.