The Budget and Property Implications

Posted On Monday, 01 April 2002 03:01 Published by
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The Budget and Property Implications: Compuspace – 21 Feb 2002

For the property sector in South Africa, the 2002 Budget contains a range of proposals that offer both direct and indirect benefits. Finance Minister Trevor Manuel, in a Budget Speech expected to be well-received, stuck to key themes of housing, service delivery, urban renewal and across-the-board personal tax relief.
The Budget and Property Implications: Compuspace – 21 Feb 2002

For the property sector in South Africa, the 2002 Budget contains a range of proposals that offer both direct and indirect benefits. Finance Minister Trevor Manuel, in a Budget Speech expected to be well-received, stuck to key themes of housing, service delivery, urban renewal and across-the-board personal tax relief.

The need for stimulatory macro-economic policy has been one of the primary issues that pre-Budget analyses have stressed. In the Budget, a number of directives were announced, or expanded, to improve investment and economic activity levels. These generally bode well for the property market, since the property cycle tends to be led by the economic growth cycle.

An amount of R3 billion is currently being channelled, via the Treasury and the Department of Trade & Industry, into encouraging investment projects in the manufacturing sector. In addition, an accelerated depreciation allowance for a range of new manufacturing assets acquired within the three years from the 1st of March 2002, has been introduced. This step may sharpen interest in the industrial property sector, especially in nodes that are preferred by manufacturing concerns.

Furthermore, the Minister indicated that certain tax benefits have been made more widely available to the small business sector, with the threshold for tax being raised from R100,000 to R150,000 of taxable income. In addition, small business benefits will be extended to companies with a annual turnover of up to R3 million. The question here is whether or not the property sector should be targeting smaller tenants in both office and industrial space.

The most direct change to the property market announced in the Budget was the restructuring of transfer duties on properties, which is expected to ease the cost of ownership for lower-income households, with the transfer duty on properties with a value of less than R100,000 being waived altogether. Properties with a value of between R100,000 and R300,000 will be subject to a transfer duty of 5%, while properties with a value in excess of R300,000 will be subject to 8% transfer duty.

A continued focus on housing may mean that the commercial and residential sectors of the property market will have to compete more intensely for land.

Overall, the Budget seems likely to maintain a low-inflation environment, which means that the commercial and industrial property sector should continue to adjust to this. Furthermore, the fact that government has managed to reduce the Public Sector Borrowing Requirement improves the scope for a reduction in long-bond rates, which could improve the performance rating of the listed property sector and the facilitation of new listings.

The Minister points out that some 20,300 land restitution cases have been settled to date, returning 300,000 hectares of land to 44,246 households. Funds available for land reform in 2004/5 has been raised to R1,1 billion.

Indirectly, the Budget took steps to increase disposable income, especially in lower-income households. Increases in pensions, social grants, child-care grants and other welfare spending looks set to help South Africans counter the effects of rand depreciation, rising inflation and the possibility of interest rate hikes. Similarly, the across-the-board reassessing of income tax brackets has brought relief to poorer households, but has also decreased the maximum tax rate from 42%, to 40%.

The spin-offs of this should benefit both the retail and entertainment sectors, in addition to boosting consumer confidence.

The Budget placed a strong emphasis on infrastructure investment, especially in the transport, government buildings and eco-tourism sectors. A focus on road and rail rehabilitation, and new capex, is proposed as a boost for investment. An increase is funding is furthermore being made available for the modernization of medical facilities, and may boost construction work in this sector over the next three years.

A focus on municipal services delivery, especially to poorest households, remains a strong theme in the Budget. Nodes identified as needing rural development or urban renewal will receive priority attention in this regard, and the actual roll-out of these services is a key element of the Budget’s proposals.

It is noteworthy that the Budget includes funding for the building of managerial capacity-building at all levels of government, no doubt as a key element to service delivery and policy implementation.
Publisher: SAPOA
Source: SAPOA

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