A number of announcements by Finance Minister Tito Mboweni on 26 February in his 2020 Budget, have given cause for home property market stakeholders to rebuild some optimism.
Threshold for zero transfers increased
The most impactful on the residential market is that the threshold for zero transfer duties on properties is now applicable to those up to R1-million, as opposed to the previous R900 000.
Absa Home Loans reacted: “Given the pressure that the household consumer is under, the increase in the transfer duty threshold is certainly welcomed. However, this only delivers minimal relief, with customers buying properties under R2-million only saving between 0.3 – 0.5% of what they were paying under the previous threshold. For this reason, we think this measure alone is unlikely to provide the significant stimulus needed to increase the activity in the property market.”
Here's what the agents had to say..
Dr Andrew Golding, chief executive of the Pam Golding Property Group says that this move is very encouraging, with one of the primary beneficiaries being first-time home owners. “While first-time buyers currently account for approximately half of all mortgages facilitated by ooba (which offers home loan expertise), affordability has tended to dampen potential demand.”
It’s not just first-time home-owners that will benefit either, but also those seeking affordably priced homes, a sector that represents a key driver in the current market that is impacted by a slow economy.
Berry Everitt says we shouldn’t forget that the banks will also benefit, many of which are now offering home loans that include transaction costs like transfer duties, bond registration and legal fees. “Their risk will be less, and this may enable them to offer even better loan interest rates in their current keen competition to acquire new borrowers.”
Local authorities assisted
Everitt also feels that the additional R426-billion that has been allocated to assist local authorities to deliver better basic services and maintain existing municipal infrastructure is also encouraging, “because everyone hopes to live in clean, tidy and well-maintained areas with uninterrupted access to water, electricity and other services. This also protects property values.”
Municipalities can purchase private power
This brings us to power and Eskom. Gerhard Kotzé, MD of the RealNet estate agency group, says he is hopeful that the acknowledgement that SA’s electricity sector needs to be completely restructured and the R230-billion allocation to doing this over the next 10 years bears fruition. “Meanwhile the power grids are being opened up to more independent producers big and small, and local authorities in good standing will now be allowed to buy power from independents rather than Eskom. This will hopefully mean much less load shedding soon, especially for business, which is the real engine of economic growth, employment and ultimately, tax revenue.”
Public service wage, corruption and crime
David Jacobs, Gauteng Regional Manager for the Rawson Property Group commented that another Budget element that is likely to be positive for property is that the public service wage bill is to be cut by at least R160-billion over the next three years: “…starting with a R38-million saving this year, as well as the allocation of an additional R2,4-billion to the National Prosecuting Authority and the Directorate of Priority Crime Investigation to enable them to actually prosecute the cases arising from State capture and corruption investigations.”
Smart cities
President Ramaphosa brought it up in his SONA, and Minister Mboweni followed his lead. “Lanseria, Gauteng has been earmarked as a potential area in which to develop a smart city, with Cape Town to follow shortly after,” commented Adrian Goslett of RE/MAX of Southern Africa. “This could drive up demand in those areas, especially once evidence of all these promises start to materialise.”
Low inflation
Rhys Dyer, ooba CEO, welcomed the commitment by the Minister to keep South Africa in a low-inflation cycle, with the forecast that inflation will average 4.5% in 2020. “This lower inflation rate, together with the interest rate cut announced in January 2020 by 25 basis points, is setting the right tone for first-time buyers or homeowners wanting to sell and scale up, and there is belief that further rate cuts will follow this year.”
Income tax relief stunted by fuel hikes
The government plans to give taxpayers R2-billion relief by changing the tax brackets. For those earning around R460 000 per year, means a tax reduction of some R3 400. However that translates into a saving of just R284.00 per month. Any savings derived from tax may quite possibly be absorbed by the increase of the fuel levy which has jumped by 16c, and plus 9c for the Road Accident Fund. We are looking at octane petrol in Gauteng for example, increasing to R5.88 per litre, and diesel R5.74. Fuel increases have always had a negative rolling effect on goods as suppliers attempt to pass this onto consumers.
But, as Golding points out, the other side of the coin is that fuel hikes, “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 benefit of avoiding heavy traffic congestion and time wastage.”
Overall sentiment
The Budget, summed up by Herchel Jawitz, CEO of Jawitz Properties, is that it is significantly better than was presented in 2019. “Overall, and together with the recent interest rate cut, the foundation could be laid for a shift in consumer confidence, which is key to recovery in the residential property market. Consumers did not 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 state-owned enterprises, and reduce a bloated and inefficient public sector.”
Myles Wakefield, CEO of Wakefields Real Estate also feels that in the main, the Budget speech was completely unexpected. “We are delighted with many of the outcomes. The wise decision to increase the transfer duty threshold, not to increase VAT, to reduce income tax, and to hold capital gains tax steady, are all small steps which together contribute to stimulate the property market.
“We salute Minister Mboweni for taking some tough decisions, which have improved sentiment and should provide that stimulus so needed in the all-important property sector.”
