Budget 2016 a double-edged sword - property experts

Carin Smith

Cape Town - The R62bn allocated for housing subsidies is good news for the lower end of the property market, but transfer duty and capital gains tax increases may dampen sentiment at the higher end, property experts say.

Transfer duty on property sales above R10m is to be raised from 11% to 13%, which in essence represents a form of wealth tax. Coupled with an increase in capital gains tax, the National Budget was an inclusive budget, according to Dr Andrew Golding, chief executive of the Pam Golding Property (PGP) group.

“Although the increased transfer duty and capital gains tax is not welcome news for the property market and may to some degree dampen sentiment - mainly in the higher end of the market - generally the budget was expected to present a far more austere scenario," said Golding.

“From both a consumer and property market perspective, it was positive to note the relief afforded to lower- and middle-income earners, providing some measure of buffer against the rising costs of fuel, rates and other municipal tariffs.”

He added that a real upside within the budget is the assertive stance taken in regard to fiscal consolidation and containment of expenditure. In his view, this is reassuring in the light of the imperative to not only stabilise the economy, but also demonstrate commitment to both immediate and longer-term fiscal prudence, which is critical to investors.

“Increased investment in tourism, cities, infrastructure – including public transport, telecommunications, commercial and land development projects - augurs well for South Africa and its citizens, helping unlock opportunities for increased economic growth along with easier access to employment in key hubs as well as opportunities for home ownership," said Golding.

This includes R62bn allocated for housing subsidy programmes and R34bn for bulk infrastructure and residential services in metropolitan municipalities.

A boost for home ownership

Samuel Seeff, chair of the Seeff Property Group, has described Finance Minister Pravin Gordhan’s National Budget as measured and supportive of growth and home ownership.

"There are many positives that came out of the budget and if government can deliver on these, it gives us much hope for economic recovery and with that, a prosperous property market that will encourage sellers and buyers alike," said Seeff.

He added that the R5.5bn relief in personal income tax for lower- and middle-class income earners will provide some alleviation against rising costs and inflation, and encourage home ownership.

"The only real concern we have is the hike in transfer duty at the upper end of the market for the second successive year - this time taking it from 11% to 13% for transactions of R10m and above," said Seeff.

"Based on what we have seen following last year’s hike, we would reiterate our concern that rather than generate the additional funds sought, it decreases the incentive to sell and trade in the market."

Seeff pointed out that over the last year, there has been a tendency for sellers in luxury areas such as Cape Town’s Atlantic Seaboard and City Bowl to stay put, extending and renovating rather than selling and paying the additional few hundred thousand rands in transfer duty. In his view, this will affect tradability in the luxury areas and could be a notable drawback for the market.

Follow-through on the budget will be vital, according to Seeff.

Housing subsidies will put more people in homes

Adrian Goslett, CEO of Re/Max of Southern Africa, said the R62bn housing subsidy will be an extremely good thing for those who fall within the affordable housing market.

"Currently the demand for affordable housing is growing exponentially with a great number of South Africans buying properties within this sector of the market," said Goslett.

“Another element that will positively impact the affordable housing market is the personal income tax relief for low-income earners. This will essentially put more money in the back pockets of these individuals and put more people in homes.”

The budget will also have an impact on the property market for high-net worth individuals.

“Interest rates are expected to continue to rise over the next year. The expected rate hikes, along with the fuel levy increase of 39 cents, will increase the financial pressure on households that have high debt levels," said Goslett.

A budget that targets the wealthy

"Those who can are encouraged to rein in their unnecessary expenditure and focus on eradicating interest-bearing debt.”

Lew Geffen, chair of Lew Geffen Sotheby’s International Realty, said he expected a budget that targeted the wealthy and that’s "exactly what it was".

“In property terms the announcement of an increase in CGT is slightly concerning, because it also affects properties in the mid-income range, but at the same time we’re grateful that there was no increase in transfer duties below R10m nor an increase in VAT," he said.

He pointed out that currency volatility is to a large extent driving the top end of the local property market at the moment. A 2% increase in transfer duty on properties priced above R10m is hardly likely to put the brakes on, in his view.

“Overall, though, if the international community is receptive to the minister’s budget plan and the value of the currency improves, it will be to the benefit of us all, so watch this space,” concluded Geffen.