Budget 2017: property bosses tell all

Estate agencies give us their predictions and hopes for Gordhan's speech next week ESTATE agency bosses have mixed feelings about the forthcoming Budget and effects it may have on the property market. They agree, however, the government will be looking to increase revenue in the next few financial years, despite the fact that economic growth is expected to be lukewarm at best. Finance Minister Pravin Gordhan warned of this in his mediumterm budget speech in October, when he announced that, particularly with extra government spending on higher education, there would be a shortfall of at least R28 billion this year. However, general hope is that Budget 2017 will encourage investment, and not scare away topend property investors and foreign buyers. On the other hand, no tax relief is expected. One of the biggest threats posed to the property market this year is in the national budget shortfall, says Lew Geffen, chairman of Lew Geffen Sotheby's International Realty. "Pis a consequence household income will be squeezed further and the residential property market will continue to lose impetus." "...Staving off junk status and driving an international investment strategy is the only way to create economic stability that will in turn reinvigorate the property market as a whole. "It is madness to believe that the current plan of reducing the budget shortfall through taxation will meet with longterm success. The cabinet should perhaps heed the words of Winston Churchill who said that for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle." Herschel Jawitz, CEO of Jawitz Properties, does not expect any direct relief for property owners or buyers. "With virtually no economic growth in 2016, the treasury will be hard pressed to offer any tax relief in the residential property sector" Three possible relief measures would be to reduce the transfer duty percentages; to increase the current threshold of R750 000 below which no transfer duty is payable; or to raise the capital gains tax threshold to over R2m. But Jawitz believes none of these scenarios is likely In Budget 2016, the transfer duty percentages were increased significantly to 11% of the property value above R2.25 million, and a new sixth bracket provided for duty of 13% of the property value above R10m. But instead of generating more income for the fiscus, the introduction of higher topend transfer duty has had the opposite effect, says Seeff chairman, Samuel Seeff. "All it did was deter topend buyers who are now opting to stay put and upgrade, and put their money into offshore investments rather than the local property market." Last year should have resulted in increased foreign buying, but in fact, fewer foreigners bought SA property in 2016 than previously, Seeff adds. "The negative populist proposals have made foreigners very hesitant to invest and, while the Cape's prime areas such as the Atlantic Seaboard and City Bowl welcomed more foreign visitors, according to reports, fewer foreigners bought property" he said. "What we need more than anything is stability and 2017 should be the year that the economy settles down and perhaps starts growing... This in turn will mean more activity in the property market, and that will generate more income for the government not just in transfer duty, but from the entire value chain that generates further income in the form of VAT as well as personal and.company tax." Dr Andrew Golding, CEO of the Pam Golding Property group, expects that among other measures Gordhan will aim to bring in additional revenue by increasing sin taxes and raising the fuel levy "However, such measures alone are unlikely to provide sufficient revenue generation, which raises the possibility of an increase in personal wealth tax and.company tax. "Another possibility is a further hike in property transfer tax in the luxury market. But this is unlikely to be a priority given that the increase in this tax announced in last year's Budget was expected to generate only an additional R100m a small amount.compared to the budgeted estimate of R6.8bn from the hike in the fuel levy" Golding says it is, however, hoped that further relief may be afforded to existing and aspirant home buyers in terms of reduced transfer duty "Investment in owning a home is to be encouraged, particularly as a form of saving for the future, and for firsttime home buyers in particular, along with providing for a deposit, transfer duty remains a significant hurdle to be overcome when buying." Berry Everitt, CEO of the Chas Everitt International prop erty group, is expecting increases in personal income tax of at least 1% point a bracket, and possibly more for the upper brackets. "Alternatively, or perhaps even in addition, we believe there will be an increase in the VAT rate from 14% to at least 15% and that the government will manage the likely political and consumer pushback on this by making more basic goods zerorated." If VAT is increased, there could be a levelling off growth in VATrelated property selling prices, and the cost of building and renovations will increase, says Mike Greeff, CEO of Greeff Christie's International Real Estate. However, Greeff believes the budget is not likely to be all negative for the property industry "If the Finance Minister leans in a more populist direction, with talk of state intervention in the banking sector to aid smaller businesses and entrepreneurs, this could boost the property market in the lower to middlepriced category "Globally, uncertainty in the wake of Brexit and Donald Trump increases the number of foreigners seeking new territories... "The fact that Pravin Gordhan is still Finance Minister is a huge plus for South Africa, since this brings some stability, and he has shown by his actions that he considers all the options and balances the necessity of local economic growth with global financial accountability, which inspires investor confidence.

Samuel Seeff, says: As we saw from 2012 to 2015, even small improvements in the economy can notably boost the property market. Economic growth of 1% to 3% resulted in significantly higher growth in the property sector, boosting activity in some areas by up to 40% and prices to new record levels. Developments came back into the market and these have sold at pace. This is not a time for populist economics consumers are struggling and have to bear the brunt of poor economic decisions. It is time to get serious about the economy and country A credit downgrade and further economic and political instability will have harsh and longterm consequences. The effect of a poor economy is a weakened property market with slow volumes and stalling prices. A good property market needs a good economy. People need a reason to invest.