If you are planning to buy property, the general economic climate is something you should take into consideration. The South African economy is intensively tied into foreign markets, which are themselves intensively tied into one another, creating what is usually described as the global economy. It is thus that the local economy is highly dependent and influenced by the performance of the global economy. It is little wonder then that the global double dip recession has had a negative impact on the local property market.
Despite the South African Reserve Bank’s attempts to cushion the negative effects of the recession on the local economy (through various measures, including the holding of reserve funds and protecting interest rates), the national property market was adversely affected by the implosion of the U.S. housing market. Recovery has been slow, but advances towards “normality” have without doubt been made over the past two years, and the 2012 budget speech has positive implications for property markets.
Currently, the depressed prices of the market leave estate agents and sellers without much leverage to negotiate fair prices. Instead, in the market power dynamic, the buyer is at an advantage and, at the moment, is receiving highly beneficial prices. In turn, sellers are either hesitant to put property on the market, or are holding out for better/fairer/more normal prices. The market supply cannot meet the prices of demand, and the natural consequence is that the local market has become static (very little property is changing hands).
This will most likely be remedied when the local and global economies have recovered back to “normal”/efficient levels and enough capital is available to increase market velocity (the rate of exchange within a market). Once demand increases, market prices will recover back to normal levels and supply will once again meet demand. Whereas some estimates have predicted that normality will only be fully recovered by 2016-18, there are indicators that suggest that 2012 will mark the year in which market velocity begins to increase. Properties below the R2 million mark have already recovered considerably, but the high end properties are still very static.
Pravan Gordhan’s 2012 budget speech clearly outlined the government’s focus on job creation (R6.2 billion had been set aside for stimulation packages), tax incentives to encourage the private ownership of property (rather than trust and investment fund ownership) and subsidies to allow lower income earners to enter into the property market. This would allow consumers to spend the saved money on other consumables like Canon Cameras (in my case), or what else grabs your attention.
The stimulus packages aimed at job creation should have a widespread and positive impact on the national economy as it means that more capital will be injected into the economy directly by the government, and, further, that more capital should be generated as wealth is created as a result of the stimulus injections.
Private ownership will be encouraged by higher taxes being imposed on property held in trust etc. through an increase in the Capital Gains Tax. This is to say that as returns are earned on property investment, the tax charged on collective investment funds will increase more than the capital gains taxes charged to individuals.
The housing subsidy is aimed to subsidise lower income individuals (R3500 –R15000) up to R85000 p.a., which in turn will make the lower end of the property market more liquid. This subsidy also indicates a governmental focus on individual property ownership, and a focus on growing the first economy to include as many individuals as is possible. It might not be completely incorrect to suggest that property market recovery (and national economic recovery as a whole) will be dependent on strengthening lower income markets by increasing both their size (the number of participants) and their velocity (the rate of exchange within the market).