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How tough 2019 Budget impacts property sector

MAIN IMAGE: (Clockwise from left to right) Adrian Goslett (RE/MAX); Dr Andrew Golding (Pam Golding Properties); Richard Gray (Harcourts); Berry Everitt (Chas Everitt); Samuel Seeff (Seeff); Herschell Jawitz (Jawitz)

Although disappointed that Finance Minister Tito Mboweni’s 2019 Budget Speech didn’t offer any relief for the property market or for consumers, property experts found much reason to feel encouraged. In the meantime, it remains a buyer’s market.

The 2019 budget may not be fun and games for South Africans, but David Jacobs, Rawson Property Group’s Regional Manager for Gauteng. says it’s unlikely to have a detrimental effect on the property market, at least.

“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,” says Jacobs.

Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa agrees that there were no announcements made in the National Budget speech that will severely affect homeowners, but says similarly, no announcements were made that could potentially stimulate the property market in any significant way either. “However, there were enough positive outcomes within the speech to instil a hopeful confidence in the years ahead. As Minister Tito Mboweni himself stated, this is a budget for the future – one in which a seed for renewal and growth has only just been planted,” explains Goslett.

Relief about ESKOM’s debt

The most important concern on everyone’s mind was how the government would address ESKOM’s debt. It was a relief for all to hear that the government will not be taking on the R400b debt of the power utility. So too, is welcomed Mboweni’s guarantee that the days of government bail outs for other state-owned entities (SOEs) are over.

“If we can see the Minster and the Department stand strong on its desire to clamp down on SOE lending as well as aim to reduce pressure on the consumer, the economy will undoubtedly start to gain ground and we will be able to restore both consumer and investor confidence which in turn translates into increased economic activity,” says Richard Gray, CEO of Harcourts Africa.

Berry Everitt, CEO of Chas Everitt, points out that the Budget also tackled two other thorny issues, namely the need to fix SARS to ensure efficient revenue collection, and the need to shred the massive public sector wage bill.

“Such issues may not seem relevant to real estate, but they are very much so, in the sense that the real estate 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,” says Everitt.

Some positive news about housing

Dr Andrew Golding, chief executive of Pam Golding Property group, says: “From a housing perspective, while the land expropriation issue is yet to be finalised and clarified, 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.”

Rudi Botha, CEO of BetterBond, views this as a clear indication “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”.

Dr Golding also mentions that the Finance Minister noted that there is a need to respond to rapid urbanisation by shifting from ‘horizontal’ development to vertical or ‘going up’, as part of an integrated development plan. He says 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.

Gerhard Kotze, managing director of RealNet estate agency group, expects to see more high-rise housing developments in and around its major metros as part of government’s strategy to prepare for a rapidly urbanizing population.

What does it mean for the property sector?

A definite disappointment was that there were no changes made to transfer duties or capital gains tax – “a drop in these figures would have translated into higher returns for property investors which could have stimulated the market and encouraged economic growth,” explains Goslett.

Samuel Seeff, chairman of the Seeff Property Group, says the reality remains a fairly weak outlook for the economy with the finance minister adjusting the GDP growth outlook for the year to 1,5%. On the back of this, the property market will remain flat, characterised largely by sideways movement.

“That means that those that “need to buy or sell”, largely below R1.5 million (up to R3 million in some areas) will continue to transact in line with their needs. The favourable interest and bank lending climate means you can sell within a reasonable timeframe in this sector,” Seeff explains, but adds a wait-and-see approach will probably continue among property buyers in the higher property brackets that do not necessarily have to transact. “They are subject to the higher transfer duty instituted in 2016 as well as Capital Gains Tax (CGT) and rather than paying over millions that add no value, are simply sitting on the fence waiting and watching how things unfold,” says Seeff.

Furthermore, most consumers will remain on tight budgets. Herschel Jawitz, CEO of Jawitz Properties, says 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.

“Overall, the Budget was more or less as expected; what we need now is to see South Africa embarking on a recovery path which will promote confidence and investment, which will have spin-offs for the economy and the housing market across all sectors,” says Golding. They had 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.

In conclusion, though, all agree that though tough with little cause for celebration, this is the right budget given the current state of the economy. Kotze says even though this was a relatively sombre Budget, they would say that it is likely to prove positive for the real estate sector in the longer-term. In the interim, the good news is that lower inflation means that there is less likelihood of an interest increase next month.”

“We now wait with bated breath for May elections,” ends Goslett.

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