Don't be discouraged by the Budget
Category From Our CEO
At first glance, this year's Budget contains very little cheer for the real estate sector, as it focuses primarily on addressing a tax revenue shortfall of some R56bn in the 2023/ 24 financial year and reducing a national budget deficit that is expected to equal 4,5% of GDP in 2024/ 25.
On closer examination, however, the Budget does contain several allocations and provisions that are aimed at rebuilding investor and business confidence in SA and should thus be positive for property in the medium to long-term. These include:
*Plans to invest more than R943bn over the next three years in the refurbishment, maintenance and building of public infrastructure, and a renewed commitment to making any debt relief offered to SOEs such as Eskom and Transnet contingent on them being more open to public /private sector partnerships. This is important because extensive loadshedding and dysfunctional rail and port facilities are the biggest obstacles currently to the large-scale new investment, economic growth and job creation that is necessary for a healthy and expanding economy and property industry.
Meanwhile investments are being made by independent power producers in projects (mostly wind and solar) that are expected to add 4GW to SA's power generation capacity over the next 10 years, while private households and businesses have already installed a total 4,4MW of rooftop solar capacity in their own quest to avoid loadshedding altogether and .
*The allocation of a further R628m for the implementation of the recommendations of the State Capture Commission, including the prosecution of multinational companies and the high-level executives and public servants who were involved, the recovery of billions of rands stolen from government departments and SOEs, and the seizure of valuable assets suspected of having been acquired illegally or with the proceeds of a crime. This brings the total of funding for these efforts to R2,3bn, and will reinforce the message to potential investors that Government is committed to weeding out corruption and rebuilding a "clean" public service in which State revenues will not be mismanaged or misappropriated.
*The allocation of R62bn over the next three years for job creation programmes, including R7,4bn this year for the Presidential Employment Initiative, and a whopping R481bn for education and training. This is critical expenditure because it addresses the urgent need to reduce SA's very high unemployment rate. This is obviously difficult to do at a time of low economic growth, but has a much greater chance of success when resources are available to help young people improve their skills, gain some work experience and start their own small businesses (SMMEs).
*Additional funding for law enforcement agencies, courts and prisons, to the tune of R765bn over the next three years. This is vital because SA's high crime rate is also a major deterrent for prospective investors, and is one of the main reasons for a "brain drain" of many critical skills and resources in recent years. The SAPS is to deploy 10 000 new police recruits in the next year, while R2,9bn from the criminal asset recovery fund will be used to combat illegal mining and other priority crimes.
*Increases in the old age, disability, child and other grants currently paid by the State. Even though these account for a very large percentage of overall expenditure, they are the only means that many families have to survive in the current economic environment, and it is fortunate that SA still has the resources to provide this support. In addition, the Budget is still able to sustain a school feeding programme that operates in more than 20 000 schools.
*The allocation of R848bn over the next three years to the health sector, mostly for the upgrading of infrastructure, hospitals and equipment. This is being done in preparation for the controversial National Health Insurance plan, but will benefit many people by providing easier access to quality health care even if NHI is ultimately shelved or substantially revised.
Of course we are disappointed by the measures taken to raise some R15bn of additional tax this year, which will come mostly from hikes in the duties on alcohol, tobacco and vape products, bracket creep in personal income taxes and an increase in the carbon fuel levy.
All of these will put greater strain on already stretched household budgets, and may well prompt property owners and prospective buyers to think about pausing their plans until they see a solid downward trend in inflation and interest rates, which is only expected to take hold in the second half of the year.
However, we would advise buyers not to delay now if at all possible. The banks are keen to lend to those with good credit records, motivated sellers are willing to negotiate, and property prices in most parts of the country have moved sideways for the past two years. This gives home buyers and investors a rare opportunity to purchase at "yesterday's prices" and reap the rewards of the rapid value growth that is bound to occur once interest rates do start to fall.
Author: Berry Everitt