Well, the biggest news in recent weeks was of course the national Budget presented by Finance Minister Pravin Gordhan – and not only because of the tax increases and decreases that were announced, but because it opened a window on what our economic future could be in the longer term. And I must say that from a real estate point of view, that outlook at this point is “good and getting better” with the commitment of the Minister and his team at Treasury to focus on economic growth and job creation and to “spend on the right things” to achieve these objectives.
We agree, for example, that more of our collective resources should be allocated to rebooting consumer and business confidence, attracting more investment, facilitating enterprise and small business and supporting education, because these factors are also key elements in maintaining a healthy and growing property market.
It is even more positive that even in the current tough financial situation, the Minister has found a number of ways to directly encourage home buying and property investment – and all the social and economic benefits that flow from these activities. The first of these is an increase in the Transfer Duty threshold from R750,000 to R900,000, which we estimate will lower the transaction costs for buyers at this level by between R4500 and R15000, and will prove especially encouraging to first-time buyers by reducing the cash amount they need to save to enter the market.
There will also be a benefit for repeat buyers who already have equity that they can use to cover deposit and transaction costs, because they will probably now need to borrow less and be able to pay off their home loans faster. We were also pleased to note no increase for now in Capital Gains Tax, which might have proved a deterrent to the property investors we see returning to the market in greater numbers at the moment in response to a rising demand for rental homes.
Further positives for property are the significant additional Budget allocations to maintain our road, rail and other industrial infrastructure, facilitate wider access to broadband Internet, boost tourism and redevelop and improve urban housing environments to eliminate the terrible effects of apartheid spatial planning. But of course we can’t just wish away the obstacles on the road to this better future, staring with the fact that there is going to be a revenue shortfall of more than R30bn this year that taxpayers are going to have to cover.
We are obviously relieved along with everyone else that there was no VAT increase in the Budget, but “bracket creep” means that just about anyone who gets a wage or salary increase this year will be paying more income tax, and the burden on the so-called super-earners with incomes of more than R1,5m a year gets ever more onerous – and frankly discouraging in real estate terms.
Meanwhile, everyone is going to be affected by the increases of 30c/litre in the general fuel levy and 9c/litre in the road accident fund levy, whether they drive a vehicle or not, because higher fuel costs boost the price of anything that has to be transported, not to mention taxi, bus and train fares.
Consequently, we think most households will remain under considerable – although decreasing – financial pressure this year, and we are not expecting any sudden surge or spike in home purchasing right now. We do, however, foresee steady growth and an increasingly bright future for the real estate market in SA once consumers start to experience the tangible benefits of the plans and policies that were laid out in the Budget.
Warm property regards,
BERRY EVERITT
