PROPERTY AND THE 2021 BUDGET
Category General News
The property industry will always be affected, directly or indirectly, by the country's economics. The property market has been functioning well, and the budget pronouncements seem unlikely to affect the positive impact of factors such as the on-going low interest rate.
Given the classic 'between a rock and a hard place' position in which Minister Tito Mboweni inevitably found himself for the 2021 Budget speech, he managed reasonably well to balance relief for - or, not add much to - the financial woes of embattled South Africans, with the urgent need to plant a few tiny green shoots to stimulate the economy and manage the country's mounting debt.
"Given the country's financial situation, I think it was a fair budget," says Myles Wakefield, CEO of Wakefields Real Estate. "Of course we had a wish list like the lowering of transfer duty, but equally, we expected additional taxation which didn't happen. For me, the biggest issue at play with this budget is whether the government is able to carry out the commitments it's made. Bottom line, the execution risk is high, and the country has a poor track record of converting words into action. So much rests on negotiations around the public sector wage bill, and although the words of the minister 'We owe a lot of people a lot of money' are chilling and real to most, we wait to see whether our government is able to follow through on these crucial intentions."
Stanlib Chief Economist, Kevin Lings, unpacked the reality of which we all are aware, but tempered his analysis with cautious optimism that, with real political will, it is possible for the government to do what is necessary to put the country back on track: "With the tax revenue collection at R304 billion less than what was budgeted for in February, the government will have to borrow significantly more funds. Our total debt will jump from 63 percent of GDP to over 81 percent, a massive increase in total debt in one year. Just to service the debt will amount to 21 percent of government expenditure, which makes it the fastest growing area of government expenditure. Clearly, government finances are under a huge amount of pressure." In terms of government action, Ling is supportive of the 'Active scenario' route chosen by Minister Mboweni to manage SA's debt - where government debt rises slightly, then starts to moderate - which requires structural reforms (as yet not clearly articulated), and zero-based budgeting. He points positively to the focus on infrastructure development, and more use of public-private partnerships, and refers to the willingness of the World Bank to assist: "Accessing this help would be a good decision."
Government's commitment of R791,2 billion to infrastructure is of prime importance to the property market. The general consensus is that the funds not only be spent on roads, dams and the like, but also on restoration of the country's transport rail operation network, a critical component of industry and the ability of individuals to move freely. Wakefield stressed how important the infrastructure spend is to the health of the economy, but again, pointed to our poor track record of actioning what's required. "We are massively in favour of public-private partnerships, because the private sector has a far better history of managing the process and finances." He added too, "The idea of further bailouts for state-owned entities always waits in the wings, and although our Minister indicated otherwise, the reality remains to be seen. These hand-outs effectively rob crucial projects of funding."
Many of the dire predictions of tax hikes were flipped on their head, and instead, a little breathing space was given. An adjustment in the personal income tax bracket should provide some relief (an estimated R2,2 billion) for low to middle income earners. The increased price of fuel wasn't welcomed by constrained consumers, but once again, it was not unexpected.
And then there's the vaccine roll-out. Wakefield considers this absolutely critical to getting back our GDP: "If the roll out is efficient and swift, we'll do it. If not, we're going to struggle."
He added, "All in all, the 2021 budget speech didn't attempt to hide anything, nor did it go for the low-hanging fruit. Our debt projections were slightly better than expected, as the country benefited from the higher commodity prices. I consider that positive for the property market and the economy. It's put a little cash into the pockets of the mid to low income groups, and that could contribute to that sector of the property market."
Author: Anne Schauffer
