Budget comment property - ERA group

Finance Minister Pravin Gordhan has missed the boat in terms of incentivising the property sector in his first Budget speech, thus losing a key opportunity to boost overall economic recovery says Gerhard Kotzé, CEO of the ERA South Africa property group

"The Budget was disappointing, given what's happening to stimulate property markets globally and taking into account property's generous contribution to our overall GDP," he says.

Kotzé says there are indeed flickering signs of improvement in the property sector but that the Budget should have been used as the platform to nurture and expand that recovery beyond the announcement> that Government would work with banks to find ways to help more middle income people to access home loans.

"The recovery needed to be kick started. The latest Absa House price index for example shows that the upward trend in nominal house price growth evident since the middle of 2009 continued in January, although real (after inflation) prices continued to decline up to December last year.

"And the FNB House Price Index shows that the average house price declined by 3.9% in 2009, although there was an improving trend towards the end of the year.

"The real pointer to the state of the market, however, is the building data which show an extremely weak picture for the residential building sector, a major employment generator, with the three months to November 2009 reflecting a 35% y/y decline in residential buildings completed."

Taking a leaf out of the book of overseas markets, Kotzé says, the Minister could have introduced a broad tax incentive for homebuyers, established greater clarity on interest rates and introduced improved investment incentives for developers.

"House price affordability is the key and in the UK, because of various incentives, someone with average earnings can now afford to buy their first house in 21% of local authority areas, up 15% on last year, and the house price-to-earnings ratio is at its lowest level in more than six years, making it easier to get on the property ladder.

"In addition, the amount of disposable income needed by first time buyers to cover mortgage repayments has dropped from its peak of 48% to about 31%, a far cry from the prevailing situation in South Africa."

Article by: www.era.co.za