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Is the budget fit for property growth?

26 February 2020, Wednesday

The Budget Speech, which will be presented by the Minister of Finance Tito Mboweni on Wednesday, 26 February, holds huge consequences for the public, businesses and industries across the board. This speech will give investors within South Africa and abroad insight into the current economy and the measures proposed to achieve future objectives.

“Under the leadership of President Cyril Ramaphosa, investors, along with the general public, had high hopes for our economy’s growth and much-needed improvement. While investment plans and measures have been put in place, the end of 2019 didn’t show as many positive changes as we had all anticipated. The fact of the matter is, the Budget Speech will address many South Africans who are growing increasingly frustrated and impatient with the slow progress and growth we are seeing,” shares Stefan Botha, Director of Rainmaker Marketing.

“With the Moody’s credit rating looming to downgrade South Africa to junk status, the Budget Speech is a significant one for all, especially the property market. The property market is resilient and although potential tax changes, the fuel levy increase, transfer duty costs, repo rate and unemployment status all have a domino effect on the investment into the property market, we believe that property developers will play a key role in positively influencing how our economy will grow this year through the creation of catalytic developments and market driven products,” explains Botha.

The year kickstarted with a positive spin, when The South African Reserve Bank cut the repo rate by 25 basis points to 6.25%. This is the lowest the repo rate has been, and economists are expecting a second cut later in 2020. “We are seeing an increase in first-time buyers and this is as a result of the repo rate being at its lowest, coupled with banks becoming more lenient when approving bonds. Investors are also able to really take advantage of this period,” shares Botha.

The PwC prediction for this year’s budget speech expects to see Capital Gains Tax increase from 45% to 50%. While the repo rate cut benefits investors, the Capital Gains Tax changes might deter wealthy South Africans from selling their investment properties or possibly expanding their portfolio.

“Although Capital Gains Tax is expected to change, and will affect our wealthier South African investors, the PwC predictions believe that Corporate and Personal Income Taxes will remain the same. This will aid the first-time home buyer market and further make South Africa attractive through direct foreign investment. Sales within the luxury property market have slowed down, however we are already seeing a significant shift to purchases being made for properties under the R1 million mark. It is evident that the market demand is changing, and residential or first-time buyers are leading this transformation,” shares Botha.

The Transfer duties fees within the property market is expected to stay the same. The payment of transfer duty fees is quite costly for newcomers, as well as investors. As a result, to cut costs, we are seeing more individuals opt for off-plan developments that are backed by reputable developers. “By purchasing off-plan, investors and homeowners do not pay a transfer duty fee and furthermore, experience exceptional capital appreciation from the time period between construction completion to subsequent transfer,” says Botha.

What would another year be, without fuel increases? It is a contentious subject for many who travel long distances to get to work and back home. Botha adds, “Petrol and diesel price increases are fuelling the growth of urbanisation. Individuals are looking for homes that are positioned closer to their work, schools and regular social hubs. As a result, developers are identifying key business hubs and creating accessible upmarket estates that provide that illusive ‘live-work-play’ lifestyle for more South Africans.”

Unemployment is at its highest in years and with our struggling economy the numbers continue to escalate. “Through the development of property across South Africa, we have seen thousands of direct and indirect jobs generated. For instance, a development like Umhlanga Arch employed over 1000 individuals to complete this development. While the KZN North Coast Masterplan, shared from the Royal Shaka Property Group, estimated creating approximately 328 782 direct and indirect jobs,” ends Botha.

The South African economy is on shaky ground, however through effective changes we can build a solid foundation for positive growth and the property market will play a significant role in this plight.

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