Good news for property buyers in Nene's budget

2015-02-25 20:00 - Carin Smith
(Shutterstock) ~ Shutterstock

Cape Town - By doing away with the duty on pre-owned homes costing less than R750 000, Finance Minister Nhlanhla Nene is obviously hoping to make things even easier for first-time buyers and create a knock-on effect as existing owners are prompted to upgrade, according to Berry Everitt, MD of the Chas Everitt International property group.

“This will be positive for the whole country, not just the real estate sector, as a healthy demand for residential property is still one of the best indicators of a healthy economy where it is safe to invest,” he said.  

The budget is the best in many years, not only from the property market perspective, but in terms of the potential it has to really improve the lives of ordinary South Africans, in his view.
 
“There is much more money in the budget for housing, health, education and the urgently-needed revitalisation of our cities and metros to cope with rapid urbanisation – as well as effective job creation in the labour-intensive construction, manufacturing, tourism and alternative energy sectors,” said Everitt.
 
"Once these measures start to take effect, much of the current pent-up demand in the property market will be released as more people are able to earn an income and buy their own homes."

READ: Budget in a nutshell

Big stimulus

Shaun Rademeyer, CEO of BetterBond Home Loans, also said the biggest stimulus for the real estate market will be the upward shift in the transfer duty threshold, from R600 000 currently to R750 000.

“This means that homebuyers will not have to pay any tax on second-hand properties that cost less than R750 000, and that will enable many more first-time buyers to get on to the property ladder, with positive consequences for the market as a whole,” he said.

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.

Financial pressure

Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, said these increases are likely to put further financial pressure on households, especially considering that the majority of South African consumers are already dealing with high debt-to-income ratios.

To him that makes the adjustment in transfer duties on property sales a relief to property buyers who may be holding out on purchasing a property due to the numerous costs associated with a property transaction.
 
“Consumers will need to continue to make an effort to curb their spending and focus on reducing debt levels to be able to absorb the increased cost of living. This is particularly important for those who aspire to purchase a home during 2015,” said Goslett.

READ: Budget pro poor - social development minister

Positive news

The R105bn to be spent on housing and associated bulk infrastructure requirements, coupled with the fact that no transfer duties will be payable on property transactions below R750 000 is positive news for home buyers, particularly first time buyers, according to Dr Andrew Golding, chief executive of the Pam Golding Property group.

“While one may argue that those seeking to acquire a home with a price tag of R2.3m or more can afford it, the fact is that people who want to buy a house need to find a chunk of cash in addition to the deposit," said Golding.

"One also needs to take into account that people relocate and buy and sell property for a wide range of reasons, such as moving when changing jobs."

What Golding describes as a solid, even-handed budget delivered fiscal consolidation and in his view ratings agencies and market participants are likely to be reassured that SA’s finances are on a sustainable path and it seems the country's investment grade rating is safe for now.

Consumer sentiment

Lew Geffen, chair of Sotheby’s International Realty in SA, also said the budget will do much to improve consumer sentiment and confidence following the disturbing events during the State of the Nation address earlier this month.
 
"Minister Nene 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,” said Geffen.
 
“What is more, the budget will also enable the minister to give significant tax relief to small businesses, which are the real engines of job creation, and to raise the transfer duty threshold to R750 000, which will enable many more of the people who get jobs to afford their own homes."
 
Geffen is very glad that the confusion over foreign buyers being allowed to acquire residential properties in SA has been cleared up since President Jacob Zuma mentioned it in his State of the Nation address, and he believes this, combined with what he sees as a positive budget, will do much to encourage much-needed private investment in SA.

ALSO READ: Nene's budget strikes balance - economist

According to Kay Geldenhuys, finance manager at ooba, the cheaper cost of acquiring a property is good news for homebuyers, particularly first-time homebuyers, who  comprise 54% of all buyers seeking finance through ooba.

In its latest property market statistics, January 2015 oobarometer, ooba noted that the average property purchase price in the first-time buyer’s market is R775 815, therefore this segment will particularly benefit from the relaxation in transfer duty costs.

Geldenhuys added that “the South African property market outlook for 2015 is extremely positive with steady house price growth, stable and relatively low interest rates, favourable inflation outlook and increased lenders’ confidence.

The relaxation in the transfer duty rates will, therefore, act as further stimulus for the property market, in her view.

With personal income tax and fuel costs up as well as a sizeable hike in transfer duty above R2.25m, Seeff chair Samuel Seeff has hailed 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 said.

"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."

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