National budget and the residential property market

National budget and the residential property market

By Stephen de Stadler Chief Executive Officer, Fine & Country South Africa

As the Minister of Finance Toto Mboweni delivered the national budget in Parliament during the last week of February, most commentators held their breath as they waited to hear how the government was going to fund the implementation of the Covid-19 vaccine programme.

We must always remember that the sources of income for our government are fairly simple to identify. Personal taxes, VAT, corporate taxes, customs, excise and fuel duties and levies together provide approximately 94% of the total government revenue, while personal taxes on their own are required to deliver approximately 40% of the total revenue. With an unemployment rate touching 40% in South Africa, you can well understand why the revenue at the moment does not cover the expected expenditure over the short to medium term.

The Minister of Finance however recognised that the ability of the relatively small number of personal taxpayers to withstand an increase in personal tax was significantly limited, and wisely, effectively reduced the average tax rates by increasing the tax bands and allowances by above the current inflation rate of 4%.

The corporate tax rate will also be reduced to 27% in April 2022, and whilst that may sound counterintuitive, as in “why reduce tax rates when we need to collect more income?”, it is critically important for corporate South Africa to expand, so as to produce much-needed jobs in the medium to longer term. A reduction in corporate rates also makes it easier for foreign direct investment in our country to increase.

It is well recorded that reductions over time in corporate and personal tax rates leads to increased spending and improved economic conditions in the longer term. In addition, the lower the corporate tax rates, the less incentive there is to avoid the payment of tax. Avoidance (being legal ways to reduce tax liabilities) always comes as a financial cost to the entity avoiding tax, so the lower the rate, the less financial gain there is in avoiding.

The Covid-19 vaccine programme is going to be funded by a reallocation and reprioritisation of current government expenditure, and (lest we forget) the large increase in duties attached to alcohol and tobacco. Obviously, the government also needs to borrow in order to meet the budget deficit and it is a bit of a shock to realise that close on 21% of the revenue raised is used to finance government debt.

The financial markets reacted well to the Minister’s budget, with the Rand strengthening across all the major currencies as the budget speech was being delivered. It appears that the government also managed to effectively embargo the speech until it was delivered, because right up until the moment of delivery there was still speculation on the social media platforms as to what Minister Mboweni would say. This small matter is also cause for celebration, because it means that the government is serious when it says it wants to operate more professionally and cut down corruption and manipulation of markets at all costs.

But what of the housing market? The strong buyers’ market continues to reign. The buyers have the power at the moment, and this is not expected to change in the short to medium term. This means that homes have to be properly priced in the current market in order to sell. ‘Properly priced’ in this environment simply refers to the price that a buyer is prepared to pay. I would submit without hesitation that any property that has been on the market for more than six months and has not received at least an offer, is not priced at the correct level.

The professional and knowledgeable agents are using this information correctly and counselling their sellers to temper their expectations. By the same token, due to the large number of properties on the market at the moment, it is critically important to present and exhibit your property so that it stands out from the crowd.

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