The ratings agencies have been circling for months, with many fearing a downgrading to junk status, and South Africa’s economic growth rate has been narrowed from 0.8% in February to 0.5%.
“It’s almost certain that utilities like water and electricity and petrol prices will increase over the next few months, as well as the tax increases. As such it’s crucial for households to review their budgets to ensure that they’re able to cover the basics,” says Swain.“It’s fair to say that South Africans are feeling the pressure of a struggling economy - something that’s set to continue into 2017 and beyond” says Bruce Swain, MD of Leapfrog Property Group.
During his medium-budget address Minister Pravin Gordhan announced that additional taxes to the tune of R43 billion will be raised over the next two years, with R13 billion being raised next year to bring the total tax increase to R28 billion in 2017/2018.
“Whether these taxes will be in the form of company or personal taxes, sugar taxes or VAT remains to be confirmed, what is certain is that it will all feed down to households at some point,” says Swain.
“Admittedly, Minister Gordhan has limited space to manoeuvre within the current framework, and we support his call for a tightening of belts. That said, the proposed tax increases will certainly place the residential property market under further pressure.”
According to the FNB Property Barometer, “the housing market slowdown has become more broad-based, with a loss in quarter-on-quarter house price growth momentum across all 4 Major Metro Area Value Bands recently”.
John Loos, FNB Household and Property Sector Strategist, attributes this to mounting financial constraints due to “house price inflation exceeding per capita income growth, rising interest rates, and growing concern amongst consumers about their economic and financial future in a very weak economy. As yet, though, there is not widespread financial stress”.
Advice to homeowners and buyers alike
“At this point, my advice to homeowners and buyers saving up to purchase a home is to assess their fixed costs - adjusting their budgets accordingly,” says Swain.
“It’s almost certain that utilities like water and electricity and petrol prices will increase over the next few months, as well as the tax increases. As such it’s crucial for households to review their budgets to ensure that they’re able to cover the basics.”
Swain says it is also critical to settle as much debt as possible to avoid further pressure on household finances.
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