Medium Term Budget Policy Statement good for the property market

In his maiden Medium Term Budget Policy Statement (MTBPS) on November 11, Finance Minister Enoch Godongwana highlighted three major stumbling blocks to economic growth and gave some indication of the steps which need to be taken to improve the situation.

Not surprisingly, given the latest round of load shedding, electricity generation was top of his list, followed by logistics infrastructure and the issue of affordable data.

State-Owned Enterprises.

The minister offered no indication of how the government intends to approach Eskom’s R400-billion debt burden and said there are no new provisions for distressed State-owned enterprises (SOEs).

Instead, he specified that he would be adopting a “tough love” approach towards SOEs.

“All of our efforts over the past 13 years have been to fix Eskom instead of addressing security of supply by adding additional capacity to the grid. We have made significant progress in correcting this: the amendment of Schedule 2 of the Electricity Regulation Act of 2006 has raised the licensing threshold from 1 to 100 megawatts.

“It has also made it possible for private power generators to sell directly to customers, which will alleviate the risk of power cuts. The amended regulations will further enable municipalities to self-generate or procure power directly from independent power producers.”

He said South Africa had also begun to reduce its reliance on Eskom by diversifying its primary energy sources, notably through the Renewable Energy Independent Power Producer Procurement Programme.

“The 25 projects that are part of the latest round of Bid Window 5 will generate more than 2 500 MW of power at a weighted average price of 47.3c/kWhr. This is the cheapest rate achieved in the programme’s history and is among the lowest rates worldwide.”

He said that creating a competitive energy market would help contain electricity generating costs and support GDP growth over the longer term.

To improve the efficiency of South Africa’s logistics infrastructure to support export growth, the government recently announced the corporatisation of Transnet’s National Ports Authority as an independent subsidiary of Transnet, and an interim board has been appointed.

“This will create incentives for efficiency and competitiveness between port service providers – reducing delays, improving services and introducing cost discipline,” said Godongwana.

Transnet Freight Rail will allow third-party access to the freight rail network by the end of 2022. This access will boost the system volume and capacity, which is expected to lead to much-needed job creation.

The third issue to be addressed is the speedy resolution of problems blocking the release of high demand spectrum and making affordable data available to firms and households.

Impact on property

Highlighting all the key issues and emphasising the action required in the months and year ahead, Minister Godongwana’s first MTBPS is expected to boost market confidence, says Dr Andrew Golding, chief executive of the Pam Golding Property group.

“In addition to reassuring the markets that the government remains committed to fiscal restraint, the minister emphasised the critical need to push ahead with the long-promised structural and economic reforms necessary to unlock the growth of the economy – including bringing additional electricity capacity into the grid and fixing Eskom.

“Furthermore, support for small and medium enterprises and structural reforms to unlock increased private sector investment will boost economic growth and much-needed job creation. In this regard, we also look forward to seeing long-overdue priority and additional infrastructure projects beginning to come to fruition.

“We also welcome the increased funding to be provided to the SA Police Services, as well as the curtailment of bail-outs for state-operated enterprises (SOEs) and reforming of government expenditure including the stabilisation of government debt.

“We hope this MTBPS will restore confidence in the markets – despite the current challenges faced by consumers, such as load shedding and ongoing fuel price hikes – with a positive knock-on effect for the housing market.

“South Africa’s residential property market continues to demonstrate its resilience. Sales activity has rebounded after the hard lockdowns, with the number of units sold back to levels similar to those of the previous five years.

“We remain optimistic, as aspirant home buyers and existing homeowners across all demographics and sectors of the market demonstrate a sustained appetite for property acquisitions,” concludes Dr Golding.

Tony Clarke, Managing Director for the Rawson Property Group, says balancing inflation and economic growth is a delicate business.

“The strategy outlined in the mid-term budget review may not be the worst thing in present circumstances. Reducing debt and stabilising volatility is important in preparing for future growth and should hopefully settle concerns from investors over South Africa’s ability to take its economic outlook seriously.

“We hope that every little improvement to the economy contributes to positive investor sentiment, and we’re trusting that it will encourage participation in sectors like property which play an essential role in supporting and growing the country’s economy.”

Clarke expects interest rates to remain low, with only minor increases from now until 2023.

“For the South African property market, this means the exceptional buying conditions experienced over the last year will likely remain the same for some time. However, homeowners still need to budget carefully, paying down their debt as fast as possible. And, taking on new debt still needs to be handled conservatively.

“This is also an excellent time to boost savings, especially if you are planning to buy a home. Saving will minimise the effect of any potential inflation-activated interest rate increases and rising basic expenses such as fuel and household utilities.

“Putting some money away will also help new buyers cover their necessary fees and deposits, despite tight financial times,” says Clarke.

To read the full budget policy statement delivered by Minister of Finance Enoch Godongwana click here.