Real Estate and SA’s 2016 Budget Speech
Leading property agencies were quick to comment on this week’s budget, where the government announced more balance in an attempt to restore faith in South Africa’s economy. Here is what they said:
TRANSFER DUTY INCREASE
The main concern with an otherwise positive Budget Speech is that Transfer Duty on properties priced above R10m has been increased from 11% to 13%.
“This is an indication of how hard the government is looking to scrape every bit of revenue it can from the ‘consumer barrel’. If read correctly, the increase would mean an additional R20,000 in transfer duty per R1m, above R10m. At that level, little impact is expected on sales volumes,” says Herschel Jawitz, CEO of Jawitz Properties.
“It decreases the incentive to sell and trade in the market,” says Samuel Seeff, chairman of Seeff Properties. “Over the past year, we have seen sellers in luxury areas such as Cape Town’s Atlantic Seaboard and City Bowl preferring to stay put, extend and renovate rather than sell and pay the additional few hundred-thousand rand in transfer duty. This will most certainly affect the trade-ability in the luxury areas and could be a notable drawback for the market. You would need quite a few lower market transactions (maybe as many as 10 to 15) to make up the loss of transfer duty on a R10m transaction.”
Besides the slight relief for lower- and middle-income earners – a benefit for both consumers and the property market – the Budget Speech included a clear focus on restoring confidence in South Africa’s economy.
“A real upside within the Budget is the assertive stance taken in regard to fiscal consolidation and containment of expenditure, which is reassuring in light of the imperative to not only stabilise the economy but also demonstrate commitment to both immediate and longer-term fiscal prudence, which is critical to investors,” says Dr Andrew Golding, CEO of Pam Golding Properties.
“Increased investment in tourism, cities, infrastructure – including public transport, telecommunications, commercial and land development projects augur well for South Africa and its citizens. It helps to unlock opportunities for increased economic growth, along with easier access to employment in key hubs as well as opportunities for home ownership.
“This includes R62bn allocated for housing-subsidy programmes and R34bn for bulk infrastructure and residential services in metropolitan municipalities.”
INVESTING IN SA’S ECONOMY
With increases on Capital Gains Tax, Transfer Duty on luxury properties, the fuel levy and the new tyre tax, it is comforting to hear that government spending will be better allocated.
“Encouraging aspects from the point of view of the property industry,” says Berry Everitt, MD of Chas Everitt International property group. He lists them as:
- The commitment to contain the budget deficit to 3,5% of GDP, to hopefully enable SA to keep its investment-grade credit rating.
- The renewed focus on education, health and small business support, to create a more highly skilled workforce and enable faster job creation and higher home-ownership levels.
- Large allocations to municipalities should enable them to create and maintain better living environments and expand the use of public rapid transport networks.
- Attention to wastage and overspending in government, and a determination to cut unnecessary posts, increase budget oversight and slash expenditure – so money can be reallocated to meet urgent needs such as drought relief and outstanding university fees.
- No VAT increase – this could have been very damaging to lower-income households, and put them out of the running for home ownership for many years.
With government planning to introduce sharing of international tax information, providing relief for citizens with income-generating assets and investments, investors will have to disclose all their international investments to the government. There could also be stricter self-control with regards to borrowing.
Says Adrian Goslett, Regional Director and CEO of RE/MAX Southern Africa: “Consumers need to be responsible with their borrowing and only take what they can afford. There are still too many households that are currently struggling with high debt levels. Households were encouraged to reduce their debt levels and start saving to make provisions for the future.
“Interest rates are expected to continue to rise over the next year. The expected rate hikes along with the fuel levy increase of 39c, will increase the financial pressure on households with high debt levels. Those who can are encouraged to rein in their unnecessary expenditure and focus on eradicating interest-bearing debt.”
In summary, as luxury property portfolios take a knock with the increase in Transfer Duty, the lower-to-middle income sector will experience some financial relief, which could prompt an increase in first-time property buyers. Only time will tell if the promise of a more stable SA economy delivers.
Text: Compiled by Andy Moller