Real estate experts comments on the National Budget 2016

The National Budget delivered yesterday (24 February 2016), was an inclusive budget which clearly focused on restoring confidence in South Africa’s economy both locally and abroad, we take a look at what some of the leading real estate experts had to say.

RealNet Properties

What was especially notable about yesterday’s Budget, says Jan Davel, MD of the RealNet property group, was the apparent willingness of Government – in the person of Finance Minister Pravin Gordhan – to openly admit to the economic problems that are currently facing SA and to the fact that a shift in many previously-held policies will be needed to address them.
“For example, Mr Gordhan was very careful also to explain how the Budget would specifically address issues that have been in the headlines recently, such as the drought, student protects and the wastage of money through corruption, and at the same time repeatedly made reference to the need for more public and private sector co-operation in financing and managing important projects.  
“Overall, we were also pleased with the steps taken to address the concerns of both investors and the international credit rating agencies, who will hopefully now refrain from downgrading SA’s credit status to junk, and give us all the opportunity to focus on boosting economic growth and employment and earning the revenue that is needed to achieve more transformation and equality in our shared society.
“As a Proudly South African company, we were  also encouraged by the measures announced to promote the establishment and growth of more small businesses and to foster entrepreneurism, especially in SA’s rapidly growing cities, and pleased with the general inclusivity of the income tax and levy changes that were announced.
“We also understand the Minister’s reluctance to introduce an increase in VAT at this time of high food prices and rising interest rates, even though it might have helped to spread the tax burden a little more evenly. And from a real estate point of view, we are of course pleased with the huge new allocation to the Human Settlements Department and to municipalities for transport and infrastructure improvements – although less enthusiastic about the Capital Gains Tax increase and a Transfer Duty increase on high-end properties.
“In short, we think the Minister has done well with the limited resources and time at his disposal, and hope that his department will be able to implement the bulk of the proposals made yesterday, especially with regard to education, health, job creation and infrastructure maintenance and improvement.”

Betterlife Home Loans

The priority yesterday for Finance Minister Pravin Gordhan was to do everything possible to avoid SA’s credit ratings being downgraded to junk status – and this Budget was certainly an admirable attempt to do just that, says Shaun Rademeyer, CEO of BetterLife Home Loans, SA’s biggest mortgage originator.
“At the macro-economic level, it is structured to contain the all-important national budget deficit to 3,2% of GPD, which is higher than the 2,6% that was predicted for this year but down from last year’s 3,8% and shows that the country is going in the right direction as regards reducing expenditure in regard to revenue.
“It also honestly addresses the concerns of investors and ratings agencies about public sector corruption and wastage and puts in place many measures to cut government spending on the ‘wrong things’, while also addressing the urgent need for economic growth and job creation by making huge fund allocations to infrastructure development, urban transport projects, education and various business support mechanisms.
“Consequently, we believe it will prove to be the confidence-booster so critical to SA’s economic future.”
However, he says, there were disappointments in the detail for the residential property market, which essentially relies on consumers having sufficient discretionary income to buy new homes as well as more confidence that the country is “going in the right direction”.
These include the increases in Capital Gains Tax and the Transfer Duty on luxury properties costing more than R10m, as well as the limited fiscal drag relief that has been applied to personal income tax. “On top of that, the increase in the fuel levy, the introduction of a new tax on tyres and higher levies on various commodities are bound to increase food costs further at a time when they are already high due to the drought, and when many households are battling to deal with higher interest rates on existing debts.”
“This will of course limit the ability of those households to qualify for home loans and buy their own homes in the coming months, and we expect a slowdown in first-time buying as a result – unless and until the economy starts to turn around as Mr Gordhan has envisaged, and employment numbers start to rise. ”

RE/MAX of Southern Africa

Recently re-appointed Finance Minister, Pravin Gordhan, started his address to South Africans in this year’s budget speech with a simple message: “We are strong enough, resilient enough and creative enough to manage and overcome our economic challenges,” he adds, “All of us want jobs, thriving businesses, engaged professionals, narrowing inequality, fewer in poverty.”

Throughout the speech emphasis was placed on igniting inclusive growth and taking corrective steps to ensure that South Africans do not find themselves financially worse off. Gordhan said in his speech that the government would increase the higher education expenditure by R16 Billion through the course of the year. “This increased expenditure is a key element to creating a skilled workforce and ensuring that the future generations can get onto their feet financially,” says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa. “And with the promised support for small business there is the potential for more entrepreneurs to enter the market within the various business sectors. This in turn will create employment opportunities and assist in building a productive workforce.”

Goslett points out that it is a good thing for the economy that Gordhan will not support ongoing bailouts of state entities. This will ensure that the said state entities are held financially responsible for any mismanagement of funds. Failing state entities are to be terminated and the surplus will be transferred to the balance sheets of strong entities that have the potential to grow.

According to Goslett the R62 billion housing subsidy will be an extremely good thing for those who fall within the affordable housing market. Currently the demand for affordable housing is growing exponentially with a great number of South Africans buying properties within this sector of the market. “Another element that will positively impact the affordable housing market is the Personal Income Tax relief for low income earners. This will essentially put more money in the back pockets of these individuals and put more people in homes,” says Goslett. 

The budget will also have an impact on the other end of the market with an increase in Capital Gains Tax (CGT), the criteria of which were not disclosed but will obviously target high-net-worth individuals. The transfer duty on properties price from R10 million upwards was also increased from 11% to 13%. “This is effectively a wealth tax which will impact only a small percentage of homeowners,” says Goslett.

The government will introduce the sharing of international tax information, which will affect citizens who have sought tax relief internationally on income generating assets and investments. Investors will have to disclose all their international investments to the government.

Gordhan pointed out that consumers need to be responsible with their borrowing and only take what they can afford. There are still too many households which 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,” says Goslett. “The expected rate hikes along with the fuel levy increase of 39c, will increase the financial pressure on households that have high debt levels. Those who can are encouraged to rein in their unnecessary expenditure and focus on eradicating interest-bearing debt.”

He concludes by saying that he believes that the budget is fair under the economic circumstances the country finds itself in. The message instils confidence that through a well-drafted plan, things can be turned around - it now requires action and impeccable execution.

Chas Everitt International Property Group

Most economists and other expert commentators seem pleased with yesterday’s Budget, and so they should be, says Berry Everitt, MD of the Chas Everitt International property group, because it represents a remarkable balancing act.
“Finance Minister Pravin Gordhan and his team have essentially managed to walk the fine line between the urgent need to reduce the budget deficit and convince the international rating agencies that the economy is under control and the equally urgent need to find more money to fix some urgent internal problems and stave off recession without raising taxes too much and burdening already stretched consumers.
“Indeed, it is a very inclusive Budget designed to give everyone renewed hope in the economy as a whole and a brighter future for South Africans individually, and we hope that the vision it contains really can be translated into action and implementation.”
Especially encouraging aspects from the point of view of the property industry, he says, are:

*The commitment to contain the budget deficit to 3,5% of GDP, which will hopefully enable SA to keep its investment grade credit rating. “This will boost confidence of in the economy, and that is the foundation of a healthy real estate market.”
*The renewed focus on education, health and small business support in order to create a more highly skilled workforce and enable faster job creation and higher home ownership levels
*The large allocations to municipalities to enable them to create and maintain better living environments and expand the use of public rapid transport networks, especially in the large metros where such a large percentage of the population now lives.
*The attention to wastage and overspending in government and determination to cut unnecessary posts, increase budget oversight and slash expenditure in order to reallocate money to meet urgent needs such as drought relief and outstanding university fees. “These measures will bring relief to many households that are currently struggling to meet their financial commitments, as will the income tax relief announced for lower and medium-income earners.”
*The fact that there was no VAT increase, as this could have been very damaging to lower income households at this stage and put them out of the running for home ownership for many years.
Everitt says the increases in Capital Gains Tax, Transfer Duty on luxury property and the fuel levy, as well as the introduction of a new tyre tax are obviously much less welcome and will need to be closely monitored in the next few months to see what effect they have on high end property investment and the ability of middle-income households to qualify for new home loans.
“Overall, however, we expect the Budget to have a positive effect on the property market in terms of sustaining housing demand over the next 12 months.”   

Lew Geffen Sotheby’s International Realty

According to Lew Geffen, Chairman of Lew Geffen Sotheby’s International Realty, Minister Gordhan delivered the 2016 budget from a very tight spot wedged between a rock and a hard place, and under the circumstances did a decent job with the little he had to work with.

“It’s very clear that the Minister is working hard to shore up the currency and prevent a ratings downgrade. He was unambiguous about his intention to clamp down on government inefficiencies, wastefulness and corruption, and that message should be well received by the international community.

“Tax relief across all but the top income brackets will also be well received by the majority of South Africans, but we were expecting a budget that targeted the wealthy and that’s exactly what we got.

“In property terms the announcement of an increase in Capital Gains Tax is slightly concerning because it also affects properties in the mid-income range, but at the same time we’re grateful that there was no increase in transfer duties below R10 million nor an increase in VAT.

“The currency volatility is to a large extent driving the top end of the local property market at the moment and this segment is running very hot, so a 2% increase in transfer duty on properties priced above R10m is hardly likely to put the brakes on.

“Overall, though, if the international community is receptive to the Minister’s budget plan and the value of the currency improves it will be to the benefit of us all, so watch this space.”

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