Tough budget positive for property market in medium to long term

The Budget Speech is likely to prove positive for the property market in the medium to long term, says Gerhard Kotzé, MD of the RealNet estate agency group, even though some of the tax hikes may be difficult for consumers to deal with in the immediate future.

“Following the wave of renewed confidence that has swept through SA in the past few weeks, the budget has come as a bit of a reality check about how much work there is to be done to fix the damage done to the economy over the past 10 years. And it is always difficult to balance the need for more revenue with the need to boost economic growth.

“Consequently, we were glad to note that Treasury is not relying solely on increased consumer taxes (VAT, fuel and income taxes) to plug SA’s R48bn hole in tax revenues, having also pledged to cut government spending by R85bn over the next three years. Other measures include higher taxes on luxury goods, alchohol and tobacco and higher estate duties on estates valued at over R30m.”

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Focus on education and employment

Also encouraging, he says, is the renewed focus on two things that are essential for the health of the real estate market: substantial improvements to SA’s education system and youth employment initiatives. R1tn has been allocated to education over the next three years, with only R57bn of that going to fee-free tertiary education.

“With a better-educated and motivated workforce, SA has the capacity to be highly competitive and successful in global terms over the next few years, and that will naturally lead to more and better jobs – and more demand for homes and rental properties,” says Kotzé.

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More good news for property, he says, is the fact that the economic growth rate is expected to pick up this year to 1,5% and rise to 2,1% by 2020, and that the inflation rate is expected to average a relatively low 4,5%, especially if SA continues to find favour with foreign investors as it has done in recent weeks and the rand stays strong.

“Higher growth will once again raise the chances of finding employment, especially if the new investment is channelled into infrastructure development and additional support for the agricultural, mining, manufacturing and tourism sectors, as promised by President Ramaphosa in his recent State of the Nation Address.

“And lower inflation might even mean an interest rate cut or two this year, making it easier for more consumers to save deposits and to afford the monthly bond repayments on their own homes.”