Borrowed from: Residential Property News
The budget was always going to be a difficult balancing act – everybody knew it. Is it tougher than we envisaged? Myles Wakefield, CEO of Wakefields Real Estate gives his take on it, particularly as it affects our property market.
With the appointment of our new president, there’s been a clear sense of euphoria over the past few weeks – even the rand reacted to sentiment – and although we all knew the budget couldn’t possibly match the mood with similarly uplifting news, we hoped it would be reasonably balanced. Most importantly of all, we needed a budget which would convince the ratings agencies that our new president means business in every sense of the word, and that serious fiscal control would be alive and well in South Africa from here on in. In my view – and the state of the rand bears this out – the budget is very likely to have achieved that.
Nobody wanted to see an increase in VAT. Nobody. It affects everybody, and in particular, it touches those who can least afford a raised cost of living. Were there other more sensitive ways of achieving the same end? Some believe so. Equally, nobody wanted to see the substantial fuel levy – that too will affect everybody in many different, often unforeseen ways.
Bottom line is, we’ve been staring a major bullet in the face for some time now, and that threatening bullet – aka, the ratings downgrade – would have a far greater impact on South Africans, wealthy and poor, than the VAT increase. There is no doubt it would cripple growth, increase debt, foreign investment would flee the country, interest rates would escalate, and it would take the country untold years to claw its way back.
The sense of euphoria would be erased instantly.
I believe – and it’s certainly the general consensus – we’ve done enough to keep the ratings agencies at bay for now. And that’s of massive importance to South Africa.
I see this 2018 budget as inflicting short-term pain…for medium- to long-term gain. We need to look at the budget in its entirety, not simply extract the pieces which affect us directly – overall, the budget not only showed government’s determination to earn more revenue directly, but significantly, to do so by reducing government expenditure, that is, to trim the fat around bloated structures. That’s undoubtedly positive.
If we can capitalise on the stability which our new president promises to bring to his role – and if he injects some fresh, motivated, well-equipped ministers to the cabinet, confidence will build inside and outside South Africa, and the country will show growth.
From a property perspective, South Africans want to own their own homes…and are continuing to do whatever it takes to achieve that. Optimism about South Africa and its future is a great driver in the residential sector, and judging from the first months of this year, the mood is strongly positive.
Looking into 2018, we don’t see interest rates rising, and if all goes well, we could see a small decline – that, too, would be a stimulant to the marketplace, and certainly offset some of the negative elements of the budget. For homeowners with home loans, we need to tighten our belts a notch or two, and make sure we service that debt rigorously – these are our homes, no matter whether modest or palatial, and there’s little that’s more important than that. The cost of living will rise, so let’s be smart about caring for the things that matter. Like our homes.
Original Author: Anne Schauffer