Responsible budget, government must now walk its talk

Responsible budget, government must now walk its talk

MAIN IMAGE: Lead Auctioneer and High Street Auctions Director Joff van Reenen, to Bruce Swain, CEO Leapfrog Property Group, Andrew Golding, Chief Executive of the Pam Golding Property Group, Samuel Seeff, Chairman of the Seeff Property Group, Tony Clarke, Managing Director of the Rawson Property Group

Danie Keet

In what was generally accepted as a good budget, Finance Minister Enoch Godongwana tabled his maiden budget in Parliament on Wednesday.

Economists reacting to his speech described it as “boring” and “responsible, but also praised him for proposing no significant tax increases to the major revenue-generating categories, such as personal income tax and VAT for the 2022/23 tax year.

Expert real estate Lead Auctioneer and High Street Auctions Director Joff van Reenen says the Finance Minister’s anxiety in his 2022 Budget Speech about South Africa’s debt burden of R4.3 trillion is right on the money.

“Business confidence here and abroad will no doubt be buoyed by the news that our revenue collection overrun of R182 billion is in part going towards stabilising the country’s debt position, allowing us to reduce our debt borrowing for the first time in seven years.

“That abundance also allowed for a veritable feast of ‘good news’ tax announcements for both households and corporates – everything from no fuel levy increase to no rise in personal tax rates, and in fact the 1% drop in corporate tax mentioned last year is going to be implemented. All in all, South Africans are looking at more than R5.2 billion in tax relief to help support the economic recovery, according to the Minister.

“That said, though, until South Africa is spending significantly less than the current 20c of every rand of government revenue to service its ever-growing multi-trillion-rand debt burden, we’ll have odd days of sunshine, but we won’t have sustainable and equitable economic growth.

“Property investment in South Africa is currently bullish with record sales last year in several areas, but to maintain this long term the country needs economic development and a government that shows strong fiscal leadership. Today’s Budget Speech was a step in the right direction, but it remains to be seen whether government will be able to walk its talk.”

According to Bruce Swain, CEO Leapfrog Property Group, the budget recognises that structural changes are needed to effect real economic growth in South Africa. The commitment to narrowing the budget deficit and stabilising debt is very positive. For the property industry to grow – and thrive – we need a buoyant economy and an economically active population, and this is an important first step.

He said it is pleasing that transfer duty and VAT scales on property transactions remain unchanged. The former bodes particularly well for first-time buyers, while the latter will help ensure that continuous growth will be seen in the property sector in general. The property sector remains a significant contributor to the overall GDP, which is why efforts such as these are crucial.

Andrew Golding, Chief Executive of the Pam Golding Property Group, regards the budget as carefully balanced, acknowledging that an increased tax burden would threaten economic recovery, and using the tax revenue windfall to stabilise debt and provide additional support to vulnerable households and SMEs struggling in the wake of the pandemic.

Golding said with a 4.5% adjustment in the personal income tax brackets to combat fiscal drag and no increase in the general fuel levy and Road Accident Fund levy the budget delivered good news for consumers.

“While sobering metrics were presented regarding the country’s debt burden, it was encouraging to note a much-needed focus on reducing the continual demands for bailouts from SOEs – and that some will be retained, while others will be rationalised or consolidated. We also look forward to the ongoing reform of South Africa’s electricity sector to reduce reliance on Eskom and create a reliable energy supply. Clear deadlines were provided for both in the new financial year.

“From a property market perspective, we are very much aware that confidence and positive sentiment is critical to investment and market activity – both from a local and international point of view.”

Golding stated that despite its clear focus on containing debt levels, the National Budget managed to deliver additional support for the vulnerable, low-income households and SMEs in distress because of the pandemic, as well as education, health and the fight against crime and corruption, which is extremely welcome.

He also said a further increase in the threshold for transfer duty exemption, which currently stands at homes purchased for below R1 million, would have been welcome particularly as the average price paid by first time home buyers, according to ooba, currently stands at R1.14 million (January 2022).

Golding says the National Budget is, however, always a balancing act, and what markets in general look for is ongoing commitment to the current fiscal consolidation path while focusing on growth-enhancing reforms and related infrastructure plans.

“We believe that these factors, coupled with the prevailing low interest rate environment, will foster favourable market sentiment and help buoy ongoing activity in the residential property market, while contributing towards affordability for first-time home buyers eager to gain a foothold in the market.

“The residential property market has proven its resilience over many decades, including Covid and the ensuing lockdowns, and we continue to experience strong demand for homes especially in the sub-R3 million price band, but also in the price bracket from R3 million upwards, with recovery and increased activity also seen in the upper and luxury end of the market.

“Noteworthy in the light of loadshedding and the dramatic increase in electricity prices in recent years is that existing and aspirant homeowners are increasingly investing in going off the grid as far as affordably possible – a trend which is gathering momentum and is likely to accelerate exponentially in the future,” Golding concluded.

Samuel Seeff, Chairman of the Seeff Property Group, described the proposed budget as positive and welcome news.

He said it was encouraging that the focus remains on stabilising the national debt, reducing the fiscal deficit, and brining the SOEs under control while facilitating economic growth and providing tax relief and income and job support.

He said a point of concern is that the economic growth outlook for the year is slightly down to 4.4% (from 4.9% predicted during medium-term budget). The expected average growth outlook of 1.8% growth over next three years is also concerning given the need for higher growth to facilitate job creation.

Seeff also agreed that it is disappointing that, for the second year, there is no adjustment in the transfer duty exemption threshold which remains at R1 million and is now beginning to fall behind the entry level house price which is at around R1.2 million (R750 000 for a small house).

Relief for entry level buyers could go a long way to getting more people into their own homes while the interest rate is so low, and buyers can still secure higher loan to value bonds. Relief at the top end of the price scale where transfer duty and CGT was hiked four years ago, could have provided a further sales boost during this favourable phase in the residential market.

“The transaction costs on the upper end of the market when a buyer takes the transfer duty, CGT and so on into account is simply too high to encourage higher sales volumes. When you consider the multiplying factor, the opportunity cost in tax revenue lost is substantial. We have seen since the hikes that, rather than paying the higher taxes, many high-end buyers stay put and invest into upgrading existing homes. When they do buy, they tend to spend less, perhaps shifting the balance offshore.”

He adds that the residential market continues its positive phase with sustained activity. There has been over the last year a bounce back to pre-pandemic levels, and many areas have achieved some of the best sales in three years. Although the outlook for house price growth is flat for the year, sellers are taking the opportunity to sell and buy up in terms of a bigger house or better neighbourhood.

“We maintain that the property market remains good news for the economy and given the substantial multiplying factor is contributing positively to the economic recovery. Despite the two rate hikes, the market remains favourable for buyers as the interest rate is still the lowest in decades while it is easier to find credit,” Seeff said.

Tony Clarke, Managing Director of the Rawson Property Group, commented that the budget is showing a clear emphasis on economic revival for South Africa, which hopefully will settle some concerns from investors over the country’s ability to take the  economic outlook seriously.

He said the minister’s aim to create jobs, reduce the cost of doing business and build a competitive economy, could well have some positive knock-on effects on the property market as economic recovery, business and consumer confidence has an impact on real estate directly by influencing the perceived security and attractiveness of long-term investments like property. They also contribute to job security and income growth, both of which directly affect consumer affordability and, consequently, the accessibility of the property market.

“One of the most encouraging elements of the speech was the focus on keeping money in the pockets of South Africans and restoring livelihoods. Stable taxes will add impetus to a market that is already benefiting from relatively mild-interest rates and competition among the banks for new home loan business.

“Homeowners will still need to budget carefully though, and consider paying down their debt as fast as possible as we are still expecting to see at least a few more interest rate hikes for this year and we expect this to be done responsibly and slowly, with small increases of 25 basis points each time, so that it would not put any additional stress on the economy – and the property market should be able to absorb the hit and continue on a positive trajectory.”

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