How the Budget Speech Affects the Residential Property Market

The annual budget speech poses a number of challenges to ordinary South Africans in terms of increases in fuel and electricity levies as well as personal income tax. However Finance Minister Nhlanhla Nene has included measures to soften the blow (for some). 

Hike in Fuel and Electricity Levies

Taxes on fuel are set to increase by 80.5 cents per litre in April while the electricity levy is to rise by 2 cents/kWh to 5.5 cents/kWh. While this increase is set to be reduced once the electricity shortage is over, Fin24 quotes financial service provider TreasuryOne as predicting that this will likely only occur in 2023. The company does however point out that Nene has doubled the energy efficiency savings incentive.

“It’s becoming increasingly clear that home owners will benefit from investing in alternative energy sources such as solar panels – not only in terms of monthly savings but also in terms of making their property more attractive to potential buyers”, says Bruce Swain, MD of Leapfrog Property Group.

Personal income tax increases

Those earning more than R181 900 per year will have their marginal personal income taxes raised by one percentage point. FNB Economist Alex Smith explains in the Budget Review that “persons earning R500 000 per year will pay an additional R271 per month, while those earning R1.5 million per year will pay an additional R1 105 per month”. However the tax-free threshold was raised up to R73 650 providing relief for the lowest income earners.

The FNB Budget Review also reveals that “in terms of tax relief government will provide upward adjustments of 4.2% to all income tax brackets to provide for bracket creep (i.e. inflation pushing people into higher tax brackets)”.

Swain is of the opinion that “We don’t believe that the increases in personal income tax will have a significant impact when it comes to buying property a buyer’s ability to save up for a deposit and to get pre-approval for a bond at this point. However when combined with the increased fuel and electricity levies we could start seeing a change in buyer spending”.

Good news for (some) home buyers

Transfer duties were adjusted so that buyers purchasing a property below R750 000 will not pay any duties (up from R600 000 previously). “We’re pleased with the new provision that home purchases between R750 000 and R2.3 million will now incur lower transfer duties than before; as this segment of the property market has been heating up over the last few years. However the fact that purchases over the R2.3 million mark will be paying higher transfer duties will make it harder to sell those properties and is something for buyers to be aware of”, Swain believes.

Swain also advises potential buyers to take the increased fuel and electricity levies as well as the personal income tax hikes into account as this will affect their monthly budget and thus their ability to repay a mortgage in the long term. He also warns that the changes in transfer duty costs could also have an adverse effect on buyers’ appetites in the R2.3 million and up pricing brackets.