South Africa urgently needs to save jobs and create new employment opportunities. The country's debt burden is spiralling towards further downgrades with the fiscal deficit for this year forecast at -14.6% of GDP and gross debt as % of GDP at 81.8. SA's ability to repay its debt is fast deteriorating, with the debt burden expected to rise to 87.4% by 2023/24.
The Supplementary Budget tabled by Finance Minister Tito Mboweni on Wednesday, 24 June addressed the crucial need to save jobs and create new ones so as to broaden the tax base, and further enable Government to service its climbing debt.
Treasury’s special adjustment budget serves to modify the current budget outlined in February 2020 “to provide for the rapidly changing economic conditions and enable spending on the COVID-19 response". Investec analysis shows an anticipated contraction of around 10.1% this year for the domestic economy, moderately weaker than Treasury’s adjusted forecast of -7.2% y/y, due to a "slower recovery, marred by insufficient electricity capacity".
Easier to qualify for home loans
The Minister calling for the reduction of long-term interest rates to allow business and households to drive faster economic growth, bodes well for the Property industry, according to the experts.
Interest rates will be lowered again "next month or in September", to stimulate household and business spending and boost economic activity, says Berry Everitt, CEO of the Chas Everitt International property group. He expects added cuts in the interest rate "will make it even easier to qualify for home loans.
The Reserve Bank will be meeting again towards the end of July, with an added 25 basis point cut possible.
"Home prices are also declining as expected, so the market over the next few months will present the best purchase opportunities seen in more than a decade. There are certain sectors that are doing well and where employment prospects are good, such as food handling, transport, logistics and all the essential services." As a result, he expects home sales to increase and to "generate a positive spin-off for the economy by the end of this financial year".
Personal income tax unaffected - for now
Carl Coetzee, BetterBond CEO, says no immediate increase in personal income tax is also a positive for the property industry, as the minister detailed the need for tax measures of R40 billion over the next four years.
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"This is good news as it means disposable incomes won’t be affected. With the interest rate at a 50-year low and the overall market conditions geared to favour first-time buyers, it’s the ideal time to purchase property. It is likely that there will be increases in personal income tax in the future, but we appeal to the Minister to contain any increases so that lower income-earners are not impacted too much; maintaining their disposable incomes in the current situation is crucial to their survival."
Concern for the younger generation
Gerhard Kotze, MD of the RealNet estate agency group, welcomed news that the Loan Guarantee Scheme for small businesses is now up and running and has already advanced some R10m to help companies that lost money during the lockdown or that need help to restart.
"Every enterprise that can be saved also means jobs that are being preserved. The R100bn allocation over the medium-term for specific programmes to promote new employment – which is critical with the unemployment rate having reached 30,1% at the end of March being set to increase even more over the next few months. These programmes include a revamped public employment programme and the presidential youth employment intervention.
"A total of R27,7bn has been found to support these initiatives in the current financial year,” says Kotze.
The youth also comprise a rapidly growing percentage of aspirant and savvy home buyers, eager to invest in owning their own homes and planning for the future. Ooba data shows the lifting of the threshold for transfer fees to R1 million announced in the Budget in February has already gone some way towards making purchasing a home more accessible for first-time home buyers, with the "average home purchased by first-time buyers was just under R980 000".
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The R40bn tax goal will not be achieved without an aggressive strategy to broaden the tax base by implementing inclusive growth and transformation in all sectors of the economy, says the South African Institute for Black Property Practitioners (SAIBPP).
"Job creation and specifically youth employment must remain top of the agenda. Young people in our country are burdened by high data costs or lack of access to internet which severely hampers their ability to learn online, upskill and seek jobs. The slow pace of digitalisation and the high costs of data must urgently be addressed if we are to give our young people a fighting chance".
Commitment to infrastructure-led growth
The Minister’s decision to move the country towards zero-based budgeting was also seen as a highlight.
Kotze says it is welcome news that government is determined now to shift public sector spending away from consumption and into investment – and specifically R100bn of investment in better infrastructure, including roads, railways, harbours and sustainable energy. Such projects are usually also major job creators.
“We are encouraged by the decision to recapitalize the Land Bank. The R3bn involved is a relatively small expense for the fiscus, but will save many farmers from going under – and in the process ensure continued food security for SA while saving many thousands of agricultural jobs.”
Zero-based budgeting suggests "a real determination to cut government expenditure and scrap non-essential projects, while focusing our much-reduced resources on building up our infrastructure and creating millions of new jobs so that we can increase our tax revenue and steadily reduce our national debt, while still supporting better education, health and security for everyone", says Everitt.
"We are also in support of immediate reallocation of funds to local authorities to provide better services and thus upgrade the living conditions of many residents, and the commitment to more sustainable energy options."
SAIBPP reiterated that infrastructure development and maintenance is a key driver of economic growth and a significant job creator which will leave a positive legacy for generations to come. It called for townships, rural areas and areas that have been previously under-resourced, as well as housing development to be prioritised.
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According to Everitt, there needs to be "more direct support for existing property owners at this time, perhaps in the form of a tax reduction that would help those who are struggling to hang on to their homes, or could be used by landlords to offset some of the rent that many have lost due to the lockdown".
Green economy in the face of electricity crisis
It is also promising to hear that government is working closely with the private sector to green our economy, adds Golding. Fuelled by ever-increasing electricity tariffs, the greening of residential property is an ongoing trend noted in recent years, adding value and appeal for home buyers and tenants, adds Dr Andrew Golding, chief executive of the Pam Golding Property group.
"What is also evident is that the country needs to continue opening its economy in order to revive sectors hardest hit by the lockdown, including tourism, which is an important source of GDP (8.6% of GDP and supports some 1.5 million jobs). Moving forward, structural reform and addressing the challenges of key state-owned enterprises remains crucial in creating a favourable environment for the return of investment and growth and to restore fiscal credibility,” says Golding.
"This strategy, together with the re-energising of public-private partnerships, augurs well for increased confidence in our economy among investors – both local and international, and the business sector, with broad spin-offs for job creation, industry, communities and ultimately, the property market."
Further details regarding economic reforms will be announced in the Medium-Term Budget Policy Statement in October, while additional tax measures will be outlined in the 2020/21 Budget speech.
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