2011 Budget Brings Good News for Property Investors

One of the most positive things that came from the budget speech by the Minister of Finance, Mr Pravin Gordhan, especially from a property perspective, was Government’s commitment to jointly manage monetary policy with the Reserve Bank to ensure that the inflation rate remains stable within the 3 to 6 percent target range until 2013.

We don’t expect any sudden increase in the interest rate in the short or medium term.
The best news about the 2011 budget is that the transfer duty threshold increased from R500,000 to R600,000. This includes trusts (the Igrow investors preferred entity of choice), proprietary limited companies and close corporations.

This means substantial relief for the first time homebuyer or lower income buyers, as more money will now be available for deposits, transfer costs, bond registration costs and legal costs.

This has a positive effect for the Igrow investor buying existing properties in their property trusts, because more disposable income increases affordability and stretches your exposure.

Factors that directly impact on the property values are our infrastructure and policing which also received a substantial allocation boost in the budget.
 

We will see affordability increasing and demand rising even more in our entry-level segment of the property market. Looking back at last year’s (2010) growth in the entry level market for small houses of (80 m2 to 141 m2) growth was 14% in nominal terms but 10,2% in real terms, according to Jacques Du Toit, chief economist at Absa. If this was the growth during one of the toughest periods in South Africa’s economic history, one can only wonder what will happen in the good times with this type of entry level properties. Remember the properties the Igrow investors are buying are between 35 m2 and 100 m2. These properties are more affordable and excellently positioned for higher than average rental and capital growth yields.

Persons buying a primary residence can now secure their primary residence much easier in a primary residence trust. A primary residence of R1 million rand normally would have cost R80,000 in transfer duty versus R12,000 in a trust. This represents a direct saving of R68,000. Therefore our Finance Minister’s 2011 budget will make a ‘meaningful’ difference to first-time home buyers.

 A total of R122 billion has been allocated for the provision and improvement of housing. A total of R21 billion has been allocated to upgrade more than 400,000 houses in informal settlements over the next three years.

Other good news is that tax relief worth R8 billion has been granted to those individuals who are already employed and there will also be further tax concessions for the small and micro businesses that provide almost 70% of all jobs in the private sector.
 

Paying less tax means more disposable income. This means there will be more money to stimulate the demand for buying goods and services, and to produce these goods and services we need to employ more people which creates more jobs.

However, the rise in oil prices and subsequent rises in the price of fuel joined with the 10 cent rise in the fuel levy, as well as an additional 8 cent contribution to the Road Accident Fund, will impact on the consumer’s disposable income that is already feeling the effects of higher travelling costs and the increase in food prices.

However, all in all it was a very good day at the office as far as the 2011 budget was concerned and our country is certainly on the road to economic recovery and stability. Property investors can now prepare themselves for an upswing in especially the affordable market.

Our company has expanded exponentially over the past two years and we have all our property specialists under one roof.

One of our flagship developments, Mt Simon Estate, is already 85% sold out. It is the only cash flow positive property investment in Stellenbosch.

Join us for our property launch of the final phase and don’t miss out as there are only 20 units left.

Wishing you successful investing,

Warm Regards.
Jacques Fouché