Yesterday’s Budget announcement for the 2016/17 financial year has been lauded by many in the property industry as a fine balancing act in a difficult macroeconomic environment. But not everyone is pleased.
Key take outs include:
- An increase in transfer duty from 11% to 13% in the R10m+ housing market
- An increase in Capital Gains Tax for individuals from 13.7% to 16.4% and companies from 18.6% to 22.4%
- R5,5bn relief in personal income tax for low- and middle-income earners
- R16bn injection given to higher education
- R62bn subsidy allocated to the affordable housing market
- No increase in VAT
Samuel Seeff, Seeff Property Group
“Based on what we have seen following last year’s hike, we would reiterate our concern that rather than generate the additional funds sought, it decreases the incentive to sell and trade in the market.
Over the last year, we have seen sellers in luxury areas such as Cape Town’s Atlantic Seaboard and City Bowl preferring to stay put, extend and renovate rather than sell and pay the additional few hundred thousand rand in transfer duty.
This will most certainly affect the trade-ability in the luxury areas and could be a notable draw-back for the market. You would need quite a few lower market transactions (maybe as much as 10-15) to make up the loss of transfer duty on a R10M transaction.
In a market such as Cape Town, the R10M-plus sector affects whole areas. The Atlantic Seaboard and City bowl for example contributes about a third of the total annual value of property sales for the metro. About 40% of the almost R7bn traded across the Atlantic Seaboard and City Bowl falls in the R10M-plus price sector, so it is quite a sizeable market.”
Adrian Goslett, CEO of RE/MAX Southern Africa
“The R62bn housing subsidy will be an extremely good thing for those who fall within the affordable housing market. Currently the demand for affordable housing is growing exponentially with a great number of South Africans buying properties within this sector of the market. Another element that will positively impact the affordable housing market is the Personal Income Tax relief for low income earners. This will essentially put more money in the back pockets of these individuals and put more people in homes.
Interest rates are expected to continue to rise over the next year. The expected rate hikes along with the fuel levy increase of 39c, will increase the financial pressure on households that have high debt levels. Those who can are encouraged to rein in their unnecessary expenditure and focus on eradicating interest-bearing debt.”
Richard Gray, CEO Harcourts Africa
“Consumers and business owners alike will be breathing a sigh of relief due to no change in the personal income tax rate or tax rates for companies. VAT was not increased either, explaining that government has been mindful of the need to moderate the impact of tax increases on households and firms in the present economic context. The minister proposed personal income tax relief of R5,5bn, which partially compensates for inflation, focused mainly on lower- and middle-income earners as well as an increase in the monthly medical tax credit allowances.”
Tom Stilwell, head of Private Bank at Mercantile Private Bank
“Overall a very interesting and well thought out budget – the year ahead still looks tough though with lower levels of forecast growth relative to 2015. With many economists still forecasting increases in the repo rate this year, home buyers must factor this into their numbers. Allowing for a few percent buffer in their affordability calculations will hopefully mean not having to worry about how they are going to pay for the dream home they have just bought.”
Dr Andrew Golding, CE Pam Golding Property Group
“Increased investment in tourism, cities, infrastructure – including public transport, telecommunications, commercial and land development projects augur well for South Africa and its citizens, helping unlock opportunities for increased economic growth along with easier access to employment in key hubs as well as opportunities for home ownership. This includes R62 billion allocated for housing subsidy programmes and R34 billion for bulk infrastructure and residential services in metropolitan municipalities.
“The sentiment expressed towards addressing institutional and regulatory barriers to business investment and growth sends a positive signal as does the desire to reduce the administrative costs of starting businesses and foster the growth of entrepreneurship via small business development.”
Tony Clarke, MD of Rawson Properties
“The real problem with the speech is what’s missing and not what was announced. So with a bland budget, how do you get excited for property? Well, there’s nothing really but here’s some straws to clutch: with no increase in personal income tax, this could foster positive sentiment with regards to the buying decision. Increase in the effective capital gains tax rates for individuals and for companies will certainly have an impact on the buy-to-let and investor market in as much as these buyers take ROIs into the pricing decisions. This will have a slight effect in keeping price increases below the double-digit figures. Increase of transfer duties on property sales above R10m is a Robin Hood approach and bodes well for the mid and lower markets and it also drives borrower’s credit decisions. In this case, the banks should feel secure that the costs of purchase, especially in the average bond market, remain the same, which, with the slight price increases, the costs of purchase as a percentage of the property price is reduced.”
Shaun Rademeyer, CEO of BetterLife Home Loans
“At the macro-economic level, it is structured to contain the all-important national budget deficit to 3.2% of GDP, which is higher than the 2,6% that was predicted for this year but down from last year’s 3.8% and shows that the country is going in the right direction as regards reducing expenditure in regard to revenue.
It also honestly addresses the concerns of investors and ratings agencies about public sector corruption and wastage and puts in place many measures to cut government spending on the ‘wrong things’, while also addressing the urgent need for economic growth and job creation by making huge fund allocations to infrastructure development, urban transport projects, education and various business support mechanisms.
Consequently, we believe it will prove to be the confidence-booster so critical to SA’s economic future.”
Herschel Jawitz, CEO of Jawitz Properties
“The increase in the transfer duty above R10m from 11% to 13% amounts to nothing more than a simple wealth tax. Given the overall size of the budget and the challenges facing the fiscus, the additional revenue that would be raised would be barely noticeable from a residential point of view and gives an indication of how hard the government is looking to scrape every bit of revenue it can from the ‘consumer barrel’. If read correctly, the increase would mean an additional R20,000 in transfer duty per R1m above R10m. At that level, very little impact is expected on sales volumes.
The minister may have done better to lower transfer duty across the board in order to increase transfer duty revenue from more sales volumes as opposed to trying to extract more duty per sale at the top end of the market, a trend which started last year when transfer duty was increased from 8% to 11% at the top end of the transfer duty table.”
Jan Davel, MD of the RealNet property group
“Mr Gordhan was very careful also to explain how the Budget would specifically address issues that have been in the headlines recently, such as the drought, student protests and the wastage of money through corruption, and at the same time repeatedly made reference to the need for more public and private sector co-operation in financing and managing important projects.
We also understand the minister’s reluctance to introduce an increase in VAT at this time of high food prices and rising interest rates, even though it might have helped to spread the tax burden a little more evenly. And from a real estate point of view, we are of course pleased with the huge new allocation to the Human Settlements Department and to municipalities for transport and infrastructure improvements – although less enthusiastic about the Capital Gains Tax increase and a Transfer Duty increase on high-end properties.”
Berry Everitt, MD of Chas Everitt International property group
“Finance Minister Pravin Gordhan and his team have essentially managed to walk the fine line between the urgent need to reduce the budget deficit and convince the international rating agencies that the economy is under control and the equally urgent need to find more money to fix some urgent internal problems and stave off recession without raising taxes too much and burdening already stretched consumers.
The increases in Capital Gains Tax, Transfer Duty on luxury property and the fuel levy, as well as the introduction of a new tyre tax are obviously much less welcome and will need to be closely monitored in the next few months to see what effect they have on high-end property investment and the ability of middle-income households to qualify for new home loans.”
According to MC van der Berg, of MC van der Berg Incorporated, the transfer duty rates remain unchanged, except for a new bracket added for properties over R10m in value/purchase price. The following rates are applicable:
R0 – 750,000 0%
R750,001 – 1,250,000 3% of the value above R750,000
R1,250,001 – 1,750,000 R15,000 + 6% of the value above R1,250,000
R1,750,001 – 2,250,000 R45,000 + 8% of the value above R1,750,000
R2 250 001 – 10,000,000 R85,000 + 11% of the value above R2,250,000
R10,000,000 and above R937,500 + 13% of the value above R10,000,000 (NEW)
The “inclusionary rates” for CGT has changed as follows:
- Natural persons from 33.3% – 40%, which means that the effective CGT rate is 0 – 16.4% (depending on the person’s marginal tax rate)
- Juristic persons from 66.6% – 80% , which means that the effective CGT rate for a company and a close corporation is now 22.4% and a trust is 32.8%.