Given the Difficult Economic Circumstances, Budget 2022 Is a Welcome Relief

Chairman of the Seeff Property Group Samuel Seeff states that the maiden budget laid out by the new finance minister, Enoch Godongwana, is a welcome relief considering the challenging environment.

Among the key takeaways, citizens can find reassurance that efforts continue to stabilise national debt, reduce the fiscal deficit and re-establish control over state-owned enterprises (SOEs). These actions will, in turn, stimulate economic growth, create opportunities for job creation and provide much-needed tax relief.

Rather than facing tax rises, citizens will receive additional tax relief, decreasing the corporate tax rate from 28% to 27%. Household budgets will receive a necessary respite as gasoline tax will experience no price increases.

Budget 2022 What Will This Mean for Real Estate

Seeff’s most significant concern about the property market is the decrease in annual economic growth projections by 4.4% (down from the 4.9% forecasted during the medium-term budget). Furthermore, 1,8% growth over the next three years is also problematic, given the need for higher growth to boost available job opportunities.

Adding insult to injury and much to the disappointment of homebuyers, there is no change to the transfer duty exemption threshold. The threshold remains unchanged at R1 million and is now lagging behind entry-level prices of roughly R1.2 million (or around R750 000 for smaller houses).

Four years ago, the price hike in capital gains tax and transfer duty at the upper end of the price scale could have further boosted sales during this advantageous period in the residential property market. Additionally, the lower interest rate brings significant relief for entry-level buyers who can secure higher loan-to-value bonds; and allow more people the opportunity to own a home. 

When you factor in transfer duty, CGT and other fees, the transaction costs on the top end of the market are too costly to stimulate more significant sales volumes. The missed income tax exponentially increases when you include the multiplication factor, resulting in another potential expense.

We have noticed a trend with many high-end buyers opting to invest in their existing properties rather than paying the hiked tax prices required to purchase a new home; those who decide to buy tend to spend far less, likely moving the balance into offshore accounts.

Budget 2022 Significant Outcomes

Other noteworthy conclusions from the budget that we commend include promises to boost job development and improve spending on infrastructure. Godongwana also wants to funnel more money into education, healthcare, law enforcement and funding for the Investigative Directorate that manages state capture cases. The economy could also benefit from increased pensions, social payments, and the Covid-19 Social Relief of Distress Grant expansion.

Samuel Seeff further states that a sustained activity level is evident in the residential property market. Throughout the past year, sales have not only reached pre-pandemic levels but exceeded them, resulting in some of the best deals in three years across the board.

Even though predictions show that house prices will grow flat for the remainder of the year, this has not stopped Seeff sellers from taking advantage of these conditions to purchase more significant properties in more upmarket neighbourhoods.

In light of the considerable multiplier effect, Seeff maintains that the property market remains a positive factor in the economy and contributes to the overall economic recovery. Even with the two substantial rate hikes, the market remains a golden opportunity for buyers who can quickly obtain credit due to the interest rates, which sit at their lowest levels to date.