Real Estate Investor Magazine South Africa Real Estate Investor Magazine March 2018 | Page 17

FEATURE ARTICLE
I
n what could be described as the perfect storm, South
Africa finds itself at the centre of three major challenges
- and one exceptional opportunity. How does state cap-
ture, a record drought, several corporate scandals, and a new
President affect property?
The economy and politics
When we break property investment down to its basic core,
we see that people’s access to funding plays a central role.
The more an economy struggles, the less disposable income
citizens have, the less they have to spend on homes.
This impacts the real estate investment world in two ways:
on the one hand, those with access to capital may be able to
pick up a bargain in a struggling market.The challenge would
arise when trying to rent your property to prospective tenants
with a small budget. For those looking to get into property
investment for the first time, high interest rates could prove
difficult to overcome.
A central issue for many South Africans over the past few
years has been the health of our economy and the subse-
quent credit downgrades by agencies like S&P and Moody’s.
The 2018/19 Budget speech was crucial in avoiding further
downgrades, with most South Africans waiting with bated
breath for the country’s financial plan.
An austerity Budget of note, Finance Minister Malusi
Gigaba announced that VAT will increase with one percent-
age point, the first time it’s been raised since 1993. Other tax
hikes will be seen in the price for fuel, an increased estate
tax of 25% for those above R30m, and the regular increase
in sin taxes. Dr Andrew Golding, CEO of Pam Golding
Property Group, remarks: “Given the hand they were dealt,
government has performed a delicate balancing act which
it is hoped will serve to reignite confidence in investment
in South Africa, regain our global credibility and satisfy the
credit ratings agencies.”
Richard Gray, CEO of Harcourts Africa, states: “The ef-
fect of these tax hikes impacts the man on the street in a
direct manner, and this might have an effect on the rental
market on the lower end.”
Household and property sector strategist at FNB, John
Loos, remarks that the issue of affordability has had a pro-
found effect on the Cape Town housing market. He explains
that, when a housing market is strong for some time and af-
fordability issues come into play, then demand usually slows
as prices overshoot the market. Price inflation then slows
until incomes catch up. Demand then strengthens once more.
Gray adds: “Overall it was a far more balanced budget
speech than initially expected, with a focus on rebuilding,
which is in line with the newly elected President Cyril Ra-
maphosa's messaging.”
The budget speech also had some positive news for the
property sector: Duties on the transfer of properties remain
unchanged. This, along with the realistic and cohesive mes-
sage sent out by the ruling party, is good news for investors.
Mike Greeff, CEO of Greeff Proeprties, believes that proper-
ty continues to be a good investment: “Malusi Gigaba’s 2018
Budget Speech has done much to allay the fears of investors
and the public by presenting a balanced budget speech set
within the framework of the State of The Nation Address”
SA Real Estate Investor Magazine MARCH 2018
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