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The annual budget is always a tense moment for property investors and indebted home owners alike. This year, Pravin Gordhan was hailed for his prudence and for helping South Africa to skirt investment ratings downgrades. Yet what effect will the 2017 budget have on the commercial property market?

Raised duty-free transfer threshold only applies to residential property

One welcome announcement made by Gordhan in his 2017 budget speech was that the transfer duty-free threshold for residential properties will be increased from the current R750 000 to R900 000.

While several real estate agencies celebrated this news, this has no bearing on commercial property. That said, first-time home buyers who would otherwise have had to pay duties may have more money to invest in commercial property.

‘Wealth tax’ bad news for commercial property investors

The announcement that the maximum income tax for South Africa’s wealthiest citizens will increase from 41% to 45% raised some concerns. Samuel Seeff, chairman of the Seeff Property Group, expressed concern that this higher tax rate could cause more wealth to leave the country as the country’s richest seek to build their wealth elsewhere. Those who have the liquid assets to be able to invest in larger commercial property developments may be hampered by increased tax rates.

Increase on fuel levies make inner city commercial property more desirable

Although it isn’t great news for consumers, the announcement of increases in fuel levies on petrol and diesel (30 cents per litre) means that commercial property located closer to suburban areas will be more in demand. Overburdened consumers will likely seek ways to reduce expensive commutes. This means that commercial property developers who have projects in the CBD and on the city outskirts should see good tenant uptake.

Other budget increases bode well for commercial property investment

Berry Everitt, CEO of Chas Everitt International property group, also hailed some of the other announcements Gordhan made in his 2017 budget speech. Everitt applauded government’s plans to boost small business growth, and this provision of funding would likely also benefit the commercial property market, as more small businesses could be empowered to become paying tenants.

The budget’s commitment to improving road and rail transport is also good news for commercial property developments that are dependent on accessibility to workers.

Economic growth predicted for 2017 will boost property investment

Because of better commodity prices as well as better rainfall in the country’s interior, pollsters have predicted that South Africa will see more economic growth over the course of 2017. This is good news for the commercial property sector, as greater growth means more money for investors to divert into commercial property developments.

The South African Reserve Bank has also decided to keep the repo rate at 7%, as a result the costs of borrowing money should remain stable, making it easier for developers to finance their commercial projects.

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