Budget puts real estate in neutral - for now
Category From the desk of the CEO
The 2024/ 25 Budget presented this week by Finance Minister Enoch Godongwana will probably keep most homeowners and buyers in a "holding pattern" until mid-year, when the General Election will be over, and both inflation and interest rates will hopefully be on a clearly downward course.
And the reason is that most consumers will want to see how the various tax measures contained in the Budget will affect them personally before making any decisions about buying or investing in a new property. The Budget includes increases in the duties on alcohol, tobacco and vape products, for example, as well as an increase in the carbon fuel tax, but does not include any increase in the general fuel levy or the road accident fund levy.
The Minister has also declined to adjust the various personal income tax brackets or rebates to take account of inflation, a move which may well push someone who receives a salary increase this year into a higher tax bracket and require them to pay over a higher percentage of their earnings to SARS. This is known as bracket creep and is expected to deliver a significant percentage of the R15bn in extra revenue needed to cover an increase in SA's debt-servicing cost - without alienating votes in the way that a simple VAT increase would most likely have done.
In addition, many real estate consumers and potential investors may be worried that the Budget is very light on specific plans to increase investor confidence and achieve faster economic growth and job creation. It anticipates an increase in consumer spending as interest rates start to come down but does little to assure home and business owners or potential investors that loadshedding and a lack of infrastructure maintenance will soon be things of the past.
Also disappointing from a real estate point of view, is the retention of the R1,1m transfer duty threshold, and the decision not to renew the tax incentive for private households to install rooftop solar. Such installations are already producing 4,4MW of power and taking considerable pressure off the national grid.
However, government is clearly making it a priority to reduce the national budget deficit, which will reach around 4,5% of GDP in the coming year. This is bound to please investors, along with the news that some R150bn is to be withdrawn from the Reserve Bank's Gold and Foreign Exchange Reserve Fund and used to reduce SA's gross debt and future debt service costs.
In addition, it is important to see this Budget not only in local terms, but also in the context of the current low rate of economic growth (3,1%) worldwide. Indeed, big economies like Japan and the UK are actually in recession at the moment, and recession is also a strong possibility for Germany and many other countries in Europe, as well as Canada and New Zealand.
Given all of its problems, SA is thus doing well to be on track to lift growth to 1,6% this year - and to still be able to increase spending on education, social grants, fighting crime and addressing climate change. And this will, we believe, strengthen its appeal for investors increasingly keen on emerging markets, and strengthen the real estate market, especially if it is able to hold a peaceful election in May.
Author: RealNet
