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SA Property Bubble - Trevor’s blowing bubbles!

Supplied by Dave Welmans www.thepropertygame.co.za

Trevor’s blowing bubbles!

In our discussions on property bubbles it might be interesting to digress slightly to Finance Minister Trevor Manuel’s 2005/6 budget speech on Wednesday. There are a number of elements of his speech that are particularly relevant if you’re interested in examining the causes of the current property boom and analyzing whether it has the elements of a property bubble.

Firstly, the transfer duty exemption threshold has been raised from R150 000 to R190 000, together with an increase in the upper threshold to R330 000, making houses slightly more affordable. That’s an increase of over 20% in the lower exemption rate and easily warranted as SARS collected 4 billion more in transfer duties last year than the previous year. This raising of the exemption threshold particularly benefits those consumers who are first time homebuyers at the lower end of the market or just homebuyers that are purchasing property in the affordable housing segment.

Secondly, the minister mentioned that about R65 Billion rand was repatriated back into the country with the amnesty on offshore monies. Surely a significant amount of this money was invested into property.

Minister Manuel also noted that the economy or GDP has grown at an average rate of 3.2 % over the last 4 years and was expected to sustain a growth of between 4 and 4.5% for the next 3 years while inflation was going to comfortably stay within the targeted parameters of 3-6%. “We expect a continued expansion of between 4 and 4½ per cent over the next three years, signaling a significant step-change in the pace of economic growth.” It is with this “significant step-change” in mind that we need to examine the property boom.

The abovementioned points as well as the overall impact of the budgets over the last few years have contributed to a growing economy and indirectly to the current property boom. The improving economic environment and its future prospects all contribute to people’s confidence in investing in a long-term asset, viz. property.

So with this in mind, all property investors should thank the Minster of Finance for contributing to the property boom and having changed the macro-economic fundamentals of this country. Stability, sustainability and confidence have all contributed to the current environment.

Click here to download the whole budget speech.

Article by: Dave Welmans - www.thepropertygame.co.za