Herschel Jawitz, CEO of Jawitz Properties, says that the National Budget 2019 announced by Finance Minister, Tito Mboweni, shows just how little financial room the country has to manoeuvre, given the current economy and the state of our finances. Consumers will no doubt be worse off for the year ahead as a result of this Budget. 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. The Minister has made all the right comments about fixing Eskom, however, time will tell how the government will implement the turnaround strategy in the face of political and union opposition.
From a property point of view, there have been no changes to transfer duty or capital gains tax, however, the introduction of a pilot subsidy programme for first time buyers is very encouraging. While consumers will continue to face financial pressures as a result of the lack of tax relief, there should be no impact on an already subdued residential market.
The real key to any meaningful improvement in the residential market will be consumer confidence. In terms of the Budget, this will be determined by the government’s ability to deliver on keeping the lights on, reducing corruption and focusing on the key components needed to create a growing economy for the benefit of all South Africans. Consumer confidence can turn quickly if the public sees positive signs of improvement. We should be encouraged by what we have heard today.
Budget 2019 Measured, but Time to Get the House in Order
Finance Minister, Tito Mboweni’s maiden budget was always going to be tough given the extent of the economic challenges, says Samuel Seeff, chairman of the Seeff Property Group. This, with particular reference to corruption and mismanagement of SOEs, not least of which the Eskom debacle, and the shrinking tax base.
That said, Seeff views the budget as measured and in the best interest of the country right now. While disappointed that there has been no relief for the property sector or for consumers, the budget was largely as expected by the market, he says.
We expected a bail-out package for Eskom as part of the budget, and in view of this, are encouraged that this is not in the form of higher direct personal or property taxes, although not adjusting the tax brackets will inevitably still cost consumers.
The property market has had to absorb the effects of higher taxes along with cost hikes in recent years which has manifested in lower transaction volumes and the value of transactions in the upper price bands, says Seeff. Additionally, the market is feeling the effect of concern about land security and the general outlook for the country going forward.
What does this mean for the property market? While there are many positives, Seeff 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.
Above this, you find the discretionary market, i.e. those who 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.
The Seeff group however, remains buoyed by the commitment of President Ramaphosa to reform the current state of affairs and administration, deal with corruption and maladministration and boost renewed economic growth. As the finance minister said, it is important to realise that there is no quick fix, says Seeff, recovery will be gradual.
The subdued price growth and positive lending landscape mean that if you are looking to find a good buying opportunity, then you may well find it in this market. Although it may be riskier now, you could ultimately see greater return.
No quick fix for SA’s Budget, but there’s some hope….
Dr Andrew Golding, chief executive of the Pam Golding Property group:
In what was arguably one of the most closely watched National Budget speeches in recent years, Finance Minister Tito Mboweni outlined Government’s plan to boost growth, increase tax collection and reduce debt, with strong attention paid to Eskom and SOEs.
Consumers will be relieved that personal income tax rates have not been increased. However, minor increases in tax thresholds and tax rebates for individuals will not fully offset fiscal drag, thereby keeping household finances under pressure. With various measures being implemented to revive SARS capabilities it is hoped that this will ultimately help generate more revenue than further tax increases would.
However, further negative news and inflationary in itself, placing an additional burden on consumers, was yet another increase in the fuel levies, which rise by a significant 29c per litre for petrol and 30c per litre for diesel – and includes a carbon levy which will come into effect in June 2019.
Positively, the reduction in the bloated public sector wage bill shone some light on the Budget, with an option to take early retirement set to make a difference in the shorter to medium term and certainly over the longer term. This plus the fact that overtime and bonuses will be limited, while the announcement that members of Parliament and provincial legislatures and executives at public entities will not receive a salary increase this year is a step in the right direction.
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.
The Finance Minister also 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. 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.
We would certainly have liked to see a reduction in the transfer duty which would have served to stimulate property transactions across the board – with the potential to increase volumes and thereby revenue generation for government.
As far as SOEs are concerned, unfortunately, there is no quick fix for Eskom, with the recent load shedding biting a chunk out of our economy in recent weeks, and which is exerting pressure on expenditure by requiring bailouts. Clearly finances and the economic outlook have deteriorated since the MTBPS in October 2018, due to a weaker than expected economy, a shortfall in revenue collections and more cash required for SOEs.
Source: Pam Golding