While there were thankfully no real surprises or major tax increases, from a housing market perspective, it is regrettable that today’s National Budget did not seize the opportunity to extend the solar rooftop tax incentive for residential properties, as this expires at the end of this month (February 2024). This enabled households who invested in solar panels to receive 25% of their solar spend back as a tax credit, according to Dr. Andrew Golding, chief executive of the Pam Golding Property group.
Apart from hoping for an extension of this incentive, it would have been beneficial to homeowners if it had included additional costs such as generators, invertors, batteries – plus those used for security purposes – among others.
While the business incentive for solar panels will run until 2025, homeowners who are beset with the soaring costs of electricity, fuel and food, among others, as well as dealing with ongoing loadshedding, would have benefited from a much-needed extension amid the country’s energy crisis.
Consumers are also faced with an increase in the carbon fuel levy to 11c per litre for petrol and 14c per litre for diesel, which impacts not only on transport costs across the board, but is inflationary in itself. This is coupled with the fact that individuals have to contend with bracket creep, which regrettably for some, may mean that inflation-related wage increases will see their personal income possibly pushed into a higher tax bracket. Fortunately, the general fuel levy will not increase in the 2024/2025 Budget.
Given the Minister’s imperative to derive increased income, while disappointing, it was anticipated that there would be no further relief on transfer duty on residential property transactions in this year’s Budget – a factor which impacts first-time home buyers wanting to acquire their own homes. Currently, properties below R1.1 million avoid any transfer duty payments, and according to recent Lightstone statistics, the bulk of first-time buyers look to purchase in the R700 000 to R1.5 million price bands.
Of critical importance is that we begin to see significant investment in infrastructure start to take effect, which will boost market sentiment – which includes the property market - and help create a favourable and investor-friendly environment in which to conduct business – thereby increasing job creation and fuelling the economy. In this regard, it is encouraging to note the government’s intention to foster Public Private Partnerships (PPP’s), notably regarding financial and technical support in the logistics sector, namely rail and ports, among others.
Support for those impacted by floods and other climate change factors via the Climate Change Response Fund is also to be welcomed.
Most importantly, the Budget – despite some disappointments in terms of a lack of concrete measures to boost economic growth – managed to plug the revenue gap without adding significantly to the financial squeeze already endured by households. It may not have been overly surprising or exciting but it was a solid, no-nonsense budget which one may be thankful for in an important election year.
High Street Auctions Director Greg Dart says this year’s budget speech is ringing alarm bells for the economy and investor confidence.
“The only sustainable way to broaden a nation’s revenue base is to build a vibrant economic environment that offers stability, supports job creation and invites investment.
“That’s the recipe for sustainable growth.
“Shortcuts like imposing a global minimum corporate tax into an already unattractive economic proposition is short-sighted and shocking.
“A minimum tax rate of 15% on multinationals with annual revenue exceeding €750 million that want to invest in South Africa, is tantamount to waving a banner that says ‘spend your money elsewhere’. The government should be incentivising conglomerates by offering tax benefits, not imposing a punitive tax on their global revenue.”
Dart says the government’s plan to plunder the country’s most significant currency buffering fund is also profoundly disturbing.
“The Treasury's Gold and Foreign Exchange Contingency Reserve Account (GFECRA) is the thin line that protects us from economic freefall as the value of the rand goes downhill on global markets.
“Yes, the country’s debt exposure of more than R500 billion is dangerously high, but it was the government’s recklessness that created this mess in the first place.
“Why compound the error by even more recklessly draining the GFECRA of R150 billion, which will only offer a short-term solution to our sovereign debt problem, but risk our currency exposure and potentially plunge South Africa into a downward spiral that could break the economy.”
Dart says the general election in May must move the political needle towards policies that support long-term economic growth.
“2024 is a make-or-break year for South Africa.
“The new government must prioritise solutions for the power grid and infrastructure collapse that is the current legacy of State-Owned Enterprises. Without electricity or ports and transport networks there’s literally no light at the end of the economic tunnel.”.
Property market welcomes unchanged property taxes
The property market welcomes the unchanged property taxes, but are concerned about the impact on household budgets of the lack of economic growth and higher inflation.
Although we would have liked to have seen a cut in property taxes - Transfer Duty and Capital Gains Tax - as a boost to the property market, we are pleased that there will at least be no hikes for this tax year, commented Samuel Seeff, chairman of the Seeff Property Group.
The property market is, however, disappointed that the minister did not take the opportunity to increase the transfer duty exemption threshold from R1.1 million, especially as this covers the more affordable price bands where many buyers are facing affordability challenges.
The failure to extend the solar installation tax breaks is also disappointing in view of the continued Eskom electricity crisis.
While the unchanged personal tax rates are welcomed for household budgets, the failure to adjust the tax brackets for inflation is disappointing. It means that consumers will have to absorb this into their already overburdened budgets. For prospective property buyers, it means that they will have a little less to spend on purchasing a home.
The downward adjustment of the economic growth outlook is concerning, especially at a time when the country desperately needs to return to a growth path which is obviously vital to boost the property market and selling prices.
The news that inflation has again ticked up in January (to 5.3% from 5.1% in December) is also not great ahead of the expected interest rate cuts. Nonetheless, we remain optimistic that we could see rate cuts from around mid-year. The higher than necessary interest rate has negatively affected sales volumes, and reducing it should induce more buyers to come back into the property market, he adds.
For now, Seeff says further, conditions remain particularly favourable for property buyers. The muted price growth and favourable mortgage lending conditions are supportive for the market, and buyers are able to find good value. Deposit requirements remain fairly low while first-time buyers are still able to secure full loans and, in some instances, inclusive of costs.
Herschel Jawitz, CEO of Jawitz Properties, has expressed dismay at the budget announced by the minister of finance. In a high inflationary environment with rising fuel costs, high food costs and high interest rates, consumers, who account for nearly 40% of government revenue and get very little back, are now expected to pay another R15 billion to make up for an inefficient government that is simply unable to generate any economic growth to drive increased revenue.
The lack of any adjustment to the tax tables will be a bitter pill to swallow for taxpayers – those who actually pay tax – in the current environment. Even the government's projected economic growth figures of 1,6% between 2024 and 2026 are hardly enough to make a dent in unemployment. As expected, there is no direct relief for the residential market, with no changes to the transfer duty payable by property buyers. The budget will do little to create confidence in the outlook for the year ahead.
Lew Geffen Sotheby’s International Realty CEO Yael Geffen says: “It was a good news, bad news budget in the spirit of ‘one step forward, two steps back’.
Geffen says Finance Minister Enoch Godongwana’s attempt to present a silk purse from the economic pig’s ear on his plate was laudable, but fell far short of what the country needs to turn the growth tide.
“It was a good news, bad news budget in the spirit of ‘one step forward, two steps back’.
“A prime example is that the general fuel levy isn’t going up… but the government is increasing the carbon fuel levy to 11 cents per litre for petrol and 14 cents per litre for diesel. What we gain on the swings, we lose on the roundabout.
“The same goes for personal income tax. There’s no direct increase – but tax tables haven’t been adjusted for inflation either.
“In plain speak, this means if you get an inflation-related wage or salary increase this year, chances are good you’ll be pushed into a higher tax bracket. It’s called “bracket creep” and to balance this the government should increase tax thresholds by at least inflation to protect consumers.
“But not this year. The good news is that personal tax will stay the same. The bad news is bracket creep could cost taxpayers as much as R16 billion more in 2024.”
Geffen says the “good news, bad news” two-step defines this year’s budget speech.
“It is laudable that more will be spent in essential areas such as health, security and social welfare, but in truth this budget does nothing to change reality for our millions of citizens drowning in debt and staggering from pay cheque to pay cheque.
“It also puts the dream of owning a home even further out of reach for many South Africans, which doesn’t bode well for property market recovery this year either. Real estate is a sector that contributes substantially to GDP and the government should be making every effort to support rather than smother it.”
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