South African 2012 Budget sould help property market

Thursday 23rd February 2012

South African finance minister Pravin Gordhan gave his 2012 Budget Speech this week, vowing to cut the budget deficit target for next year as tax revenue is set to rise, in a bid to ease investors’ concerns about increasing debt in Africa’s largest economy.

Gordhansaid that the fiscal gap will fall to 4.6% of gross domestic product in the year through to March 2013, lower than October's forecast of 5.2%.

Gordhan wants to cut spending on wages and raising taxes to rein in a budget deficit that led Moody’s Investors Service and Fitch Ratings to cut the outlook on South African debt to negative from stable in the past four months.

In the meantime, the government wants to increase expenditure on railways, power plants and ports to bolster economic growth and create jobs for 25% of people without work, in a move which should help boost the South Africa property market, according to Lew Geffen, chairman of Sotheby's International Realty in South Africa.

He said that the Budget holds out “excellent prospects” for the speedy improvement of the real estate market and the sustainability of that recovery.

Geffen commented: "The most important macro aspects include Finance Minister Pravin Gordhan's strong stance, re-iterated throughout his speech, against corruption and financial mismanagement which, together with the fact that he has managed to contain the expected Budget deficit this year to 4,4%, will undoubtedly boost the investor confidence that is the lifeblood of the economy - and of the property sector.

"Also critically important are the R845bn (£70bn) allocation to various new infrastructure projects and the increased spending on existing public works, community works, and rural development programmes, as these are set not only to create thousands of new jobs - and new home buyers - but to raise the management capacity of SA."

Of more immediate benefit, he says, will be the new housing subsidy scheme to be implemented through the provincial administations, which will see those who earn between R3500 and R15 000 a month able to access subsidies of up to R85,000 (£7.00). "This will give the lower end of the market much needed impetus and no doubt have a positive knock-on effect."