Earlier this month, Private Property published the feature ‘The upcoming budget: reasons to pay attention!’ The crucial considerations were tax amendments, where the state is spending and where it intends to spend its money, whether there would be an introduction of a more permanent type of state grant for the unemployed, and most importantly, the government’s expectations regarding growth.
While these may be factors that impact all stakeholders in the economy, the property sector also wanted to see an increase in the threshold under which no transfer duty is payable. And there are differing opinions from some of the agencies that this was not addressed in the 2022 Budget Speech.
Samuel Seeff, chairman of the Seeff Property Group, said plainly: "It is 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, now at around R1.2-million or R750 000 for a small house." This is important, he said, because 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 a 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, and the multiplying factor means the opportunity cost in tax revenue lost is substantial. We have seen 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."
One property company that sees the other side of the story is Leapfrog Property Group, whose CEO, Bruce Swain, commented: "We are particularly pleased that transfer duty and VAT scale on property transactions remain unchanged. The former bodes particularly well for first-time buyers, while the latter will help ensure that we keep seeing growth in the property sector in general."
Regardless of mixed opinions, overall, Minister Enoch Godongwana's first budget is being viewed as positive, mainly because no new taxes were introduced, including no fuel tax increase in April. In addition, there will be inflationary relief through a 4,5% adjustment to personal income tax brackets and rebates, and the poor are to receive income relief via the social distress grant.
Gerhard Kotze, Managing Director of the RealNet estate agency group, says that the latter bodes well for the residential real estate market and the commercial market, which will no doubt also be positively affected by the decision to lower the corporate tax rate by 1%, as well as government's plans to underwrite small business loans and actively promote more public-private partnerships to speed up the urgent repair and development of SA's road, rail and water infrastructure.
“However, we all know that the real key to the future of the property market in SA is the systematic reduction of unemployment, and that can only be achieved in an environment of strong economic growth,” said Kotze. “So, it is disappointing that GDP is only expected to grow by 2% or less for the next three years. The government will simply have to do more to encourage and enable local and foreign investment in SA that is needed to increase this growth rate and speed up job creation.”
Berry Everitt, CEO of the Chas Everitt International property group, agrees with Kotze in that he hopes all the measures will help in the near to medium-term to bring about a significant increase in employment, "which will be key to maintaining a healthy property market in SA.
“Our market is also very sensitive to consumer sentiment and confidence in the future development of South Africa, as we have seen recently with the increase in semigration and emigration in response to the KZN riots, return of load shedding, and an increase in serious crimes. This sentiment will be massively improved, we believe, by the announcement that there will be no more bailouts using taxpayers’ money for our struggling State-Owned Enterprises (SOE). In addition, we sincerely hope now that the commitments made to introduce specific measures to prevent public sector corruption and financial mismanagement will also be honoured.”
Everitt is pleased that from a real estate point of view, "Treasury's plan to facilitate a government loan guarantee scheme will enable business owners to gain better access to bank funding." This is notable because individuals and small businesses have largely borne the brunt of economic destruction brought about by the Covid-19 pandemic.
Seeff provides the final comment: "We maintain that the property market remains good news for the economy and, given the substantial multiplying factor, is contributing positively to economic recovery. Moreover, despite the two rate hikes, the market remains favourable for buyers as the interest rate is still the lowest in decades, and it is also easier to find credit."
Read More: Industry views on the 2022 National Budget
