South African Budget Speech 2015- Impact in Housing Market
SA Budget Speech 2015
Speaking at the Budget Speech for 2015, Finance Minister, Nhlanhla Nene, voiced concerns regarding the deficit between the projected tax proceeds and government’s revenue requirements for the year ahead, despite the expenditure ceiling being lowered.
As a result, Nene announced that the gap would need to be bridged, which means that taxes would need to be increased. Aside from the usual increases in sin taxes, consumers will also have to deal with increases in the petrol price, electricity tariffs and personal income tax.
With personal income tax and fuel costs up as well as a sizeable hike in transfer duty above R2.25 million, Seeff chairman, Samuel Seeff has hailed Finance Minister, Nhlanhla Nene’s maiden budget as bitter-sweet for the housing market.
While the tax increases were not unexpected and we welcome the transfer duty relief brought about by the raising of the threshold for the exemption of transfer duty to R750 000, the raising of transfer duty at the top end is of great concern, he says.
Although the higher threshold will certainly help make home ownership more affordable for the middle class, they will of course have to find some extra budget to compensate for the personal income tax increase. Sadly too, the higher income tax is likely to lead to further cost hikes.
“We think Finance Minister Nhlanhla Nene has done an excellent job given the fact that he had so little room to manoeuvre on this Budget, and has managed to address most of the issues currently troubling most South Africans.
“For example, he has taken a tough stand on government wastage and tender fraud, and promised to save at least R25bn for the fiscus by implementing tighter controls.”
“At the same time, he has found more money for housing, schools, hospitals and especially for the improvement and repair of the outdated and inadequate infrastructure in our rapidly growing cities. This is all positive news for the property market, which is dependent on positive consumer sentiment, because it improves people’s experience of their living environments.”
-Lew Geffen, chairman of Sotheby’s International Realty in SA
At the top end, the increase in transfer duty is significant, says Seeff. Consider for example that on properties priced between R5 million and R10 million, the increase amounts to an effective 22-30%. On a R5M property sale, the increase will amount to about R70 500 (from R317 500 to R387 500) and on a R10M property sale, to about R220 500 (from R717 000 to R937 500). This will definitely affect the top end areas such as Cape Town’s Atlantic Seaboard and City Bowl, Southern Suburbs, Sandton, the KZN Dolphin coast and other premium coastal areas.
That aside, the relief brought about by the drop in the oil price is also likely to be short lived, already there is talk of a petrol price hike looming in the coming week, says Seeff. Additionally, the energy crisis will no doubt bring about extraordinary increases in electricity costs (on top of the electricity levy introduced in the budget).
Certainly, the higher transfer duty at the upper end of the market is regrettable given that we are in the midst of a two-year growth spurt despite the subdued economic conditions. For the first time in years people are buying houses again with a whole economic value-chain of services benefiting, from estate agency commission to legal fees, home inspections, utility deposits and connections and tax clearance costs for government.
While there are pockets of excellence nationally, the market has only regained about 25% of its pre-2007/8 strength and certainly does not need anything to upset the balance right now. The top end personal tax hikes and higher transfer duty above the R2.25 million price band is likely to make buyers think twice about whether they want to make a move now, particularly in top end areas such as Cape Town.
Upper income buyers, rather than move, are likely to stay put and renovate and rebuild, says Seeff. And, you have to sell a great deal more lower priced properties to generate the R387 500 in transfer duty that a single R5 million sale would, says Seeff.