The Budget and Property

Published: Mon 3rd March 2014
Author: Lew Geffen Sotheby's International Realty
Real estate industry leaders generally approve of yesterday’s Budget, with most praising Finance Minister Pravin Gordhan for keeping a good balance between controlling spending and promoting growth. Here’s what they had to say:

* Harcourts Real Estate CEO Richard Gray: “The Minister met one of his biggest challenges in this Budget, in that he has managed to contain the expected deficit over the next year to 4% of GDP.

“This is a substantial decline from the 6,8% of GDP reached in 2010 and should reassure the ratings agencies that currently have SA “on watch” and hopefully help to boost the foreign and local private sector investment so desperately needed for job creation.

“Also positive, are the increase in small business tax relief and the manufacturing development incentives. This will make South African companies more competitive and should also fuel growth and job creation, which would of course have a positive impact on the housing market.

“Potential voters in this year’s elections are also bound to appreciate the additional allocations for on education, healthcare, infrastructure, grants and pensions, as well as the news that government aims to deliver more than 200 000 new social housing units over the next three years, even though this will still leave a lot of work to be done to provide proper basic housing for all South Africans.

“And of course everyone will welcome the Minister’s ‘present’ of R9,3bn worth of personal tax relief, but we are disappointed that there were not more specifics on what government plans to do to really boost economic growth over the next few years. The projected growth rate of only 2,7% is extremely concerning, as the  Minister by his own admission feels that a minimum growth rate of 5% is needed to make any meaningful dent in the job creation backlog.”

* Shaun Rademeyer, CEO of SA’s leading mortgage originator, BetterBond: “With consumer incomes under increasing pressure from rising transport, food and utility costs, the R9,3bn worth of household tax relief announced in today’s national Budget is very welcome.

“We were also pleased that further measures were announced to encourage small business development, as this indicates growing government recognition of this sector’s ability to generate employment and assist more South Africans to rent or buy decent housing.

“We were disappointed, though, that the Budget did not bring any specific tax relief for homebuyers or owners – either by way of a higher transfer duty threshold or by way of a tax rebate for the interest paid on homeloans.

“Such relief, would have helped to alleviate the current decline in housing affordability that is taking place as house prices and interest rates rise and salary increases fail to keep up with higher household costs.”

* Berry Everitt, MD of the Chas Everitt International property group: “In an election year, when government is obviously trying to seek favour with as many potential voters as possible, the focus on education, health, housing and infrastructure, grants and pensions was almost inevitable, and it is also no surprise that the widely rumoured tax increase for the wealthy did not materialise.

“Nevertheless, the Minister did well to more or less balance these social demands with the need to prove to the ratings agencies like Moody’s, Fitch and Standard & Poor’s – and thus to international investors – that there is a steady hand on SA’s financial tiller and that the country is sticking to a plan to reduce its spending, grow the economy and cut its budget deficit.

“And in this regard we were pleased to hear the Minister underline his commitment to cutting government spending, although we believe more attention should have been be paid to reducing the public sector wage bill – unpopular as this might be in an election year. Salaries and wages for public servants currently make up more than 40% of all government expenditure and this does not sit well with taxpayers in the light of the large scale wastage and corruption that is increasingly evident in the public service.”

“From the real estate point of view, we were also concerned that the Minister was not more specific about the government’s plans to achieve economic growth – and specifically to support small business, as it is always the best creator of jobs and, ultimately, housing demand.”

* Lew Geffen, chairman of Sotheby’s International Realty in SA: “The Minister was walking an election tightrope when he presented the Budget today and has done well to keep his balance.

“Particularly welcome, from the macro-economic point of view, was his decision not to raise the tax rate for the country’s highest earners from 40% to the 42% or even 45% that some commentators had predicted. This type of wealth tax, similar to that recently imposed in the UK and some European countries, is of course an easy answer for governments that urgently need to raise revenues to please poor voters who are clamouring for service delivery.

“However, the Minister has realised that it is also a trap, because it generally offers only a very short-term advantage, followed by a long and often permanent drop in revenues. High earners are quick these days to react to any punitive tax measures by simply moving their wealth elsewhere and, once bitten, are reluctant to move it back again, especially if, as in SA, they perceive their contribution are being wasred through widespread corruption.

“As it is, he says, the 2013 Budget Reveiew shows that while those earning more than R500 000 a year make up just 8,4% of SA’s 14m registered taxpayers, they account for almost 55% of the tax revenue that is being collected, so government can’t really afford to alienate them.

“The renewed focus on reducing government spending and creating private sector jobs that will broaden the tax base is a much more equitable, sustainable and investor-friendly solution to the revenue problem. These measures will also benefit real estate, as will the increased expenditure on education and small business promotion, which are the real keys to long-term growth and stability in this market.”

* Dr Andrew Golding, CE of the Pam Golding Property group: “The Minister’s emphasis on controlling state expenditure while still placing a priority on encouraging growth, job creation and infrastructural expenditure is welcomed, as is the fact that he has managed to provide personal tax relief of R9,3-billion to cash-strapped consumers in the 2014/15 financial year.

“The R6,5-billion allocated over three years to support small and medium enterprises is also a step in the right direction, coupled with the news that the turnover tax regime will be amended to further reduce the tax burden on micro-enterprises, as this will further encourage entrepreneurial endeavours and hopefully, also job creation.

“The proposal of an increase in the tax-free, lump-sum amount paid out of retirement funds from R315 000 to R500 000 is also expected to assist South Africans to plan for their future and help foster a culture of saving. In this regard the introduction of legislation to allow for tax-exempt savings accounts is a further positive move.

“From a property market perspective, it is disappointing to note that there was no property specific tax relief or schemes introduced which would help home ownership generally, but in particular first time home ownership. However, new spatial plans for cities, upgrading informal settlements, increased social infrastructure and improved public transport, coupled with the announcement of 216 000 houses to be built, is positive news.”

* Herschel Jawitz, CEO Jawitz Properties: “The Minister offered no tax relief for the sluggish residential real estate market, but given the current economic climate and the challenges for government in terms of revenue, this was anticipated.

“We welcome the Minister’s comments on eradicating government wastage on infrastructure spending. The challenge, however, is always about how wisely money will be spent.”

* Seeff chairman, Samuel Seeff: “This was a good news budget positive for the housing market.

“The focus on infrastructure development is a positive for both economic and employment growth, which are essential for the property market, as is the youth wage subsidy which should encourage skills development, hopefully with an entrepreneurial spin-off.

“While the rise in the fuel levy will no doubt impact on households, the tax relief for lower and middle income earners is also good news. This will put more money in the pockets of consumers and we would encourage especially bond holders to invest any savings into their bonds. Those still saving for a home, should take advantage of any potential savings to put towards their deposit or transaction costs.

“On the down-side, we were disappointed that there was no relief on property transaction costs and capital gains tax. Transfer duty especially forms a large part of the costs associated with a property transaction and does remain an impeding factor to market growth.”

*Adrian Goslett, CEO of Re/Max of Southern Africa: “Although the global economic outlook is still unsteady and in some instances is feeling the aftershock of the recession period, the fact that the SA economy has, for the most part, normalised and is experiencing positive growth is encouraging for local consumers.

“This positive growth, along with the R9,3-billion worth of personal income tax relief, should have a positive knock-on effect on the property market over the next year..

“However, interest rates are expected to continue to rise over the next year and this along with continued fuel price rises will increase the financial pressure on households that have high debt levels, so those who can are encouraged to rein in their unnecessary expenditure and focus on eradicating interest-bearing debt.

“From a property transaction perspective, there was little change. The transfer duty rates remained unchanged, the Capital Gain Tax inclusion rates are still the same and estate duty has also remained unchanged. However, the building of another 216 000 social housing units and additional budget allocations to infrastructure development, housing subsidies and an increased supply of electricity to more homes, can only be of benefit to the economy as a whole and thus the property market.”