Adjustment in transfer duty threshold a welcome move
Apart from the tax reprieve announced by Finance Minister Tito Mboweni in the National Budget, with no major tax increases and even personal income tax relief across the board, with the bulk going to taxpayers earning less than R500 000 a year, good news for the property market is the adjustment of the threshold for transfer duty with zero duty payable on property costing R1 million or less, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
Encouragingly, one of the primary beneficiaries of the 2020 Budget is first-time home owners. And one of the key positives for the local housing market is the demographic dividend of a young population – with approximately two-thirds of the current population under the age of the average first-time buyer (34 years, according to ooba).
While first-time buyers currently account for approximately half of all mortgages currently facilitated by ooba, affordability has tended to dampen potential demand. The 2020 Budget goes some way towards addressing this, by lifting the transfer threshold from R900 000 to R1 million. This is given that the average price paid for a home by a first-time buyer broke the R1 million barrier for the first time ever at the beginning of the year – at R1 001 275 in January 2020.
The increase in the transfer duty threshold provides a very positive incentive not only for first-time home buyers but also others seeking affordably priced homes – a sector which represents a key driver in the current market. It will help stimulate property transactions in this price band, increasing volumes and creating a ripple effect across the market in general – which will in turn benefit government income generation.
It is also pleasing to see that the Help to Buy scheme has assisted over 2 000 families to buy their own homes.
As expected, the fuel levy has again increased, this time by 25c per litre, 16c for the general fuel levy and 9c for the Road Accident Fund levy. With consumers having had to absorb a carbon levy which came into effect last year (2019), disproportionately rising fuel costs due to rising levies create an inflationary impact across the economy, further eating away at consumers’ disposable income.
As we’ve seen in recent years, and a trend which will continue, is that rising fuel costs further propel buyers towards conveniently located, hassle-free living in major centres and key nodes close to the workplace and all amenities, including schools, with the added benefits of avoiding heavy traffic congestion and time wastage.
With the weaker economic outlook and bail-outs for SOEs, plans to contain costs by reducing the public sector wage bill, recover money lost due to fruitless and wasteful expenditure and corruption, among other measures, offer some encouragement.
Further positives are an emphasis on spending on education, health, social development and infrastructure – the latter including the refurbishment of industrial parks in townships and rural economies. It is hoped that industrial business incentives, small business incentive programmes and the lowering the cost of doing business will go some way towards assisting this sector, coupled with assistance for agriculture – a critical area to ensure food security in South Africa.
In particular we agree that a key priority is job creation as the youth represent the future of our country. Helping create employment opportunities will ultimately assist the younger generation either rent or acquire their first home – thereby gaining their first foothold on the ladder towards wealth creation and owning a significant asset.
A crucial component in restoring consumer and investment confidence in South Africa is availability and continuity in our energy supply, so the ability of municipalities in good standing to purchase electricity from independent power producers is overdue, given the renewed bouts of load shedding experienced in recent weeks. However, this offers major benefits for residents in these municipalities, with Cape Town for example already making plans to do so.
The fact is that for cash-strapped, budget-conscious consumers the long-term fiscal trajectory remains muted and they will be looking to reduce monthly costs where possible. In this regard, in the housing market, we’re going to see an ever-increasing trend towards energy-saving features as more and more homeowners - including entire residential estates and developments across all sectors - endeavour to reduce their reliance on Eskom and even go completely off the grid.
This is becoming an economic imperative especially as the costs of such features become more accessible to a broader public. Developers and landlords will focus increasing attention on reducing municipal costs for services such as electricity and water as much as possible in order to make their offerings more appealing to tenants.
Consumes get more than expected
Herschel Jawitz, CEO of Jawitz Properties, believes that from a consumer point of view the 2020 Budget is significantly better than that of 2019, especially against what was expected. Given the budget deficit and the revenue challenges, an increase in VAT and virtually no increase in the personal income tax thresholds were expected, which would have hit consumers hard. This turned out not to be the case. Other than the usual increases in sin taxes and a less than expected increase in the fuel levy, consumers are going to get more tax relief than they got last year, with above-inflation increases in the PIT thresholds. This, together with the recent interest rate cut, could lay the foundation for a shift in consumer confidence, which is key to the recovery in the residential property market.
The increase in the transfer threshold to R1 million is once again not a significant increase but definitely more than expected. At the lower end of the market, an extra R3,000 saving will add to the buying opportunities in the current market already supported by favourable bank lending and property prices offering excellent value. Consumers didn’t carry the burden of this budget and that’s good news for consumer confidence. The real burden for the current budget is carried by the government and their ability to fix the SOEs and reduce a bloated and inefficient public sector.
Some positive outcomes
The Minister of Finance, Tito Mboweni, made some interesting announcements in the National Budget Speech on 26 February 2020. Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, says that some of these announcements will have a positive impact on the local property market.
“Though there is still a lot to be done, there were some positive outcomes in this year’s budget speech. To start, properties under R1 million are now exempt from transfer duties. To date, this exemption only applied to properties under R900,000. Though this is not a huge adjustment to the tax-free threshold, it will still help make it easier for many to purchase entry-level homes,” says Goslett.
The second positive announcement that Goslett notes is the confirmation that Government will soon allow those municipalities that can afford it the opportunity to purchase electricity from the private sector. This will alleviate pressure on the national grid and reduce the risk and frequency of load shedding which, Goslett notes, bodes well for both the property market and the country as a whole.
Minister of Finance, Tito Titus Mboweni, also made mention of the development of smart cities referred to by the President in the SONA. He earmarked Lanseria as a potential area in which to develop this smart city. Cape Town was said to follow shortly thereafter. “This could drive up demand in these areas, especially once evidence of these promises start to materialize,” Goslett predicts.
All in all, Goslett says that the local property market stands to benefit from some of the announcements made in this year’s budget speech. Though more could be done, Goslett remains hopeful that the new policies outlined in this speech will nevertheless help towards addressing the many fiscal problems our nation faces.
Finance Minister Tito Mboweni’s had the unenviable task today to deliver some rather unfavourable news to the nation. Mike Greeff, CEO of Greeff Christie’s International Real Estate weighs in on the speech with his views on how the budget will affect the property sector:
“After almost a decade of weak economic performance, there is still a lot to be positive about – from the deep and liquid capital markets to being the most diversified economy on the continent – it is not all doom and gloom.
The biggest news for the property industry is that the threshold for transfer duties has been adjusted. Property costing R1 million or less will no longer be subject to transfer duty. This is welcoming news for all because it makes buying property more. It’s also great news for those wanting to purchase for more than R1 million because you will save, for example, R17,000 in transfer fees on a R2.5 million home.
Contrary to predictions, there will also be no increase in VAT which is welcoming to the public.
There will be somewhat of a relief for South Africans as Personal Income Tax brackets are adjusted above the inflation rate and this means that there will be more money coming into people’s pockets.
The Finance Minister also pointed out the growth in employment due to the Job Fund projects. To date, the project has created more than 175 000 permanent jobs for the youth and have helped 21 000 young people get into internships. This is a huge positive for the property sector because as young people become financially independent, more and more young adults will be able to qualify for home loans and in turn, become property owners and increase their personal wealth.
On another positive note, the pilot of the Help to Buy scheme has supported over 2,000 families to buy their own homes. This is significant as the number of homeowners has increased, and it is only expected to increase further throughout the year. In a single year (2019), the Help to Buy scheme has supported nearly R1 billion in new lending therefore aiding in more South Africans being able to own their own home.”