Herschel Jawitz, CEO of Jawitz Properties, says that while the 2022 Budget Speech did not give direct relief to the residential property market, there are some positive aspects. From a property perspective, as expected, there have been no changes in the transfer duty thresholds or percentages, and no changes to the Capital Gains Tax exemption threshold of R2 million for a primary residence.
A key part of the activity in the residential market has been from first-time buyers who have been able to take advantage of the R1m transfer duty threshold exemption. Property prices have increased over the last year by approximately 4 to 5% and, as such, the transfer duty exemption should have been adjusted for property price inflation.
From a general budget aspect, the commitment to reducing the budget deficit to 4,2% over the next three years is welcomed. What is positive is the attempt to ‘protect’ consumers’ disposable income. This comes in the form of increasing the personal income tax brackets by 4,5%, most of which will go to the lower and middle income earners and which will go some way to shielding consumers from the increased cost of living.
In addition, as South Africans face record petrol prices, there will be no increase in the fuel levy or the road accident fund levy. In itself, these may be small gestures but they will provide consumers with some relief. The residential property market has reaped the benefit of low interest rates over the last two years, but with rising rates and record fuel prices putting pressure on disposable income, the Budget does provide some relief from a further increase in our cost of living. While it may not have a positive impact on the market in terms of increased sales, it will offer some marginal support to consumers and thus to buyers from an affordability point of view.
Lew Geffen Sotheby’s International Realty CEO Yael Geffen says this year’s budget speech is the first in years to give South Africans tangible confidence that economic recovery is possible.
“To have a R180 billion tax overrun in the kitty is a long way from getting us out of the woods, but it eases the crushing burden that every South African business and individual has felt in recent years.
“I don’t recall another budget in which the tax burden on citizens wasn’t almost universally increased, but this year nothing went up other than carbon tax and so-called ‘sin taxes’.
“In fact, inflation-aligned personal tax bracket and rebate adjustments as well as medical tax credit increases will see more money in people’s pockets at the end of the day, which is excellent news for home owners making mortgage payments and people saving to buy their first homes.”
Geffen says the Eskom and general SOE situation is still extremely worrying and a massive challenge to macro-economic growth, as is the State’s debt burden of R4.3 trillion.
“One year of good revenue collection across a broader tax base shows the government is making an effort to put its house in order and it’s a positive start for which it should be commended, but the congratulations should only come when it has done this 10 years’ running. Then we’ll know the country’s leadership is serious about state prosperity rather than state theft.”
Budget 2022 brings welcome relief, but transfer duty disappoints again for homebuyers
The maiden budget of new finance minister, Enoch Godongwana is welcome news and positive given the difficult circumstances, says Samuel Seeff, chairman of the Seeff Property Group.
It is encouraging to hear that the focus remains on stabilising the national debt, reducing the fiscal deficit and bringing the SOEs under control while facilitating economic growth and providing tax relief and income and job support.
Seeff says a point of concern is that the economic growth outlook for the year is slightly down to 4.4% (from 4.9% predicted during the 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.
We are pleased that rather than facing tax hikes, there is more tax relief for individuals while the corporate tax rate comes down from 28% to 27%. There are also no hikes in the fuel levy, all of which should put some money back in household budgets and provide important relief.
It is, however, 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 you take 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.
We are also pleased at the commitments to infrastructure spend and job creation investment and additional funds for healthcare, education and police and the allocation to the Investigating Directorate to deal with State Capture cases. Poverty alleviation is also welcomed for the economy including increases in social grants and pensions and extension of the Covid unemployment relief grant.
He adds that the residential market continues its positive phase with sustained activity. We have seen over the last year not just a bounce back to pre-pandemic levels, but many areas have achieved some of the best sales in three years.
Although the outlook for house price growth is flat for the year, Seeff says that 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.
