South Africa: National budget boosts infrastructure investment in key property areas
It was positive to note that the critical need for infrastructural improvements has been highlighted in today's National Budget, as investment in sound infrastructure with a focus on energy, clean water supply and effective sanitation, well-maintained roads and other transport facilities, as well as affordable and effective broadband connectivity, promotes economic growth, and fosters employment opportunities.
It also ultimately attracts new businesses and both residential and commercial property development and helps foster thriving economic hubs. This is evidenced by the semigration trend, which continues to see home buyers relocate to municipalities with good infrastructure and sound management.
Investment in owning one's own home is recognised as a key aspiration for people across all sectors of the market, with benefits including capital appreciation and potential rental income. According to Pam Golding's Residential Property Index, national house inflation continues to gather momentum, rising to +5.75 in January 2025, which is higher than the post-pandemic peak of +5.6% in May 2021.
While the National Treasury was faced with a challenging balancing act in delivering the National Budget, the increase in Vat, albeit 0.5% in the short term – with a further 0.5% the following year (2026/27) - will impact already cash-strapped consumers, particularly those who can ill afford it – this despite the increase in zero-rated foods to cater for the poor.
With citizens about to be hit with hefty electricity hikes – which will attract increased Vat, this simply increases financial pressures on consumers who must also pay Vat on other municipal tariffs – all of which adds up to a sizeable share of their monthly income.
From a property perspective, there are a number of Vat-inclusive services associated with the purchase of a home, for which buyers will need to allocate additional budget, which will impact particularly on first-time buyers seeking to gain a foothold on the first rung of the property ladder.
The transfer duty threshold was last adjusted to R1m in 2020/21 which compares to the average purchase price paid by a first-time buyer of R1.24m. Obviously, it was difficult to adjust again with current pressure on the fiscus, but an adjustment is due particularly given the surge in inflation in the wake of the pandemic. Furthermore, purchasers of new-build units will also be affected, as Vat is incorporated in the purchase price of new developments when brought to market by developers.
The fact that the fuel levy has not been increased is positive, however, South Africans across the board will be negatively impacted by the lack of inflationary adjustments for personal income tax bracket creep, and for medical tax credits.
It is hoped that a clear focus on fiscal consolidation will bear fruit, with the stabilising of debt.
As noted in the Budget speech, the key issue that needs to be addressed is the lack of economic growth. This requires macroeconomic stability – which this budget delivers even as it places pressure on households.
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