South Africa’s property market has been quite resilient in the face of the Covid-19 pandemic and its impact on the economy – with analysts weighing what the upcoming budget speech will hold for the current market, benefitting first-time buyers.
Analysts project that South Africa is “unlikely to show much decline in debt projections in the near term, as any revenue overrun will be tiny in comparison, but must work down longer-term projections”.
South Africa’s tax revenue collection for 2020/21 is likely to significantly exceed the forecast made in the 2020 medium-term budget speech, affording the National Treasury the ability to be more flexible – and hopefully keep tax rates at bay. However, funding of the vaccine “could still see some sort of once-off tax levy being introduced”.
This is according to Shaun Rademeyer, CEO of MultiNet, who says with GDP currently forecast at 3.8% for 2021/22 with an inflationary increase of 4.4%, “we are likely to see no increase in property transfer duties” this year when Finance Minister Tito Mboweni delivers his 2021 Budget Speech on Wednesday, 24 February.
The transfer duty-free threshold was raised from R900k to R1 million as part of last year’s budget. First-time buyers were able to benefit considerable, as interest rates dropped to its lowest in 50 years during the course of 2020 – boosting the lower to middle-income price band homes. Many industry players are still surprised at the outstanding sales performance in 2020 during Covi-19, and 2021 has started no differently from where we left off in 2020.
In 2019 over 50% of all applications processed ranged in the price bracket of between R250 000 and R750 000. However, over the past several months there has been a shift with much higher volumes being processed from the price bracket of R750 000 and above. This higher value market now equates to 55% of all applications compared to the 49% in 2019.
“The increase in volumes in the higher end of the market has most certainly been attributed to the low interest rate cycle we find ourselves in” Rademeyer says.
Investec economist Lara Hodes agrees that while there is a modest overrun in tax revenue expected, “lower real and nominal growth coupled with expenditure side overshoot, exacerbated by necessary COVID-19 relief funding, continues to undermine Treasury’s efforts to adhere to fiscal consolidation.”
Covid-19 and fragility of SA’s economic predicament
“By the end of December 2020 (latest government finance figures published), South Africa’s cumulative budget deficit for the first three quarters of the 2020/2021 fiscal year had reached -R432.97billion. Main budget revenue was projected to reach R1.1trillion in 2020/2021, but there is now the possibility of a modest overrun, with revenue receipts already at R869bn or 79.1% of the projected total for the year. Last year, during the comparable period revenue receipts were 71.9% of the total for the year. Expenditure at 1.3trillion, is sitting at 72% of the estimated total for the fiscal year of R1.8trillion, a similar position to last year,” says Hode.
Hodes says the effects of the pandemic have further served to highlight the fragility of South Africa’s economic predicament, which continues to be weighed down by structural inefficiencies, contentious policy decisions and a history of corruption.
“SA is unlikely to show much decline in debt projections in the near term, as any revenue overrun will be tiny in comparison, but must work down longer-term projections,” she says.
Rademeyer adds that with the property market performing above expectations the revenue increase would be welcoming for the Government”, however, with inflation creeping above the 3.5% mark, interest rates are expected to go up in the second and third quarter of 2021/22 – which could have an impact further down the line.
‘Deficit of around -15.0% of GDP expected’
Hodes says a deficit of around -15.0% of GDP in 2020/21 is expected. This is narrower than the MTBPS estimate of -15.7%, but substantially weaker than February 2020’s pre-pandemic budget estimate of -6.8%. While some fiscal consolidation is planned by closing the budget deficit to -7.3% of GDP by 2023/24 and stabilising the debt to GDP ratio by 2025/26 at 95.3% of GDP, this will likely not be enough for credit rating agencies as Fitch’s current negative outlook warns of further downgrades for SA (Fitch and S&P have SA at BB-, Moody’s at ba2, the BB equivalent).
“Saying this the property industry will still be benefiting from a 50-year low-interest rate and a 25-basis point increment increase would not have a significant impact on the current property market, which we believe will continue to perform above pre-covid-19 numbers,” says Rademeyer.
“The 2021 State of the Nation Address (SONA) detailed the progress that has been made thus far with regards to the implementation of key reforms stipulated in the reconstruction and recovery plan. Evidence of implementation is necessary to boost investor confidence and accordingly drive growth,” says Hodes.