Few property experts expected the 2019 National Budget Speech to herald dramatic changes for South African homeowners so close the general elections. As such, it came as little surprise that the most direct influences on the property market – transfer duty and capital gains tax – received no mention whatsoever during Finance Minister Tito Mboweni’s speech.
Despite this, the Rawson Property Group’s Regional Manager for Gauteng, David Jacobs, says the new budget will still affect the residential and commercial property markets. The results, while far from dire, are expected to prolong the current market slowdown that has been suppressing property price growth, nationwide.
Decreased consumer spending power
“Although the 2019 Budget is a little gentler on the public pocket than 2018’s bombshell, it’s still going to be a tough one for consumers, and property affordability will be an ongoing issue as a result,” says Jacobs. “A decrease in transfer duty and capital gains tax could have offered some relief in this, but I don’t think anyone is too surprised that that didn’t happen.”
Some surprise was experienced at the decision not to increase income taxes, although keeping the tax brackets unchanged does result in a mild effective increase due to inflation.
“Sin tax increases were substantial, but things could definitely have been worse on the income tax side,” says Jacobs. “I do believe that South Africa’s mid- to high-income earners have become quite resilient to a higher tax burden. They’re planning their household spend more effectively and are well prepared to handle property purchases and rental expenses.”
Fuel levy adjustments were also less extreme than expected, with less-than-inflation increases for the first time in recent memory. In combination with the new carbon tax on fuel to be implemented this June, however, consumers will be paying notably more to get behind the wheel.
“This tends to have a knock-on effect, increasing the cost of everything from groceries to services,” says Jacobs. “It will make it more difficult for people to save up for big expenses like property, and decrease market activity as a result.”
Increased business development
It’s not all doom and gloom for Joe Public, however. Jacobs says the Budget’s focus on industrial business incentives and small business incubation programmes will help stimulate job creation and put some money back into South African pockets.
“It is positive to see business development and job creation being taken seriously. It should help stimulate both commercial and residential property markets, in time.”
Increased community development
Another potential source of stimulation for the property market is the planned increase in community development announced by Minister Mboweni.
According to Jacobs, improving the infrastructure and amenities of underdeveloped communities will do much to improve housing demand in areas with previously limited buyer appetite.
Land reform and expropriation
Speaking of limited buyer appetite, the fact that the ‘elephant in the room’ – expropriation without compensation – did not make an appearance in the 2019 Budget speech may be an unexpectedly good sign for investors. Jacobs says the prioritisation of agricultural land reform over expropriation indicates a healthy attitude of caution from our often-hasty government.
“I think it’s actually a very positive sign that the government isn’t rushing into anything when it comes to expropriation,” says Jacobs. “It’s a very controversial and complex issue, and the more time the government takes to consider all the angles, the more likely it is that there will be a positive outcome.”
What to expect moving forward
The 2019 Budget may not be fun and games for South Africans, but Jacobs says it’s unlikely to have a detrimental effect on the property market, at least.
“Realistically, we’re not going to see massive growth in property values, but I think it’s equally unlikely that we’ll see a huge decrease in the number of unit sales,” he says. “Price stabilisation will continue, buyers will remain in the driver’s seat, and there will be excellent opportunities for value-for-money purchases for those ready to take advantage.”