Budget Speech 2025/6 Breakdown: A Mixed Impact on South Africa's Property Market and Economy

South Africa’s budget for 2025/6, tabled by Finance Minister Enoch Godongwana, revealed a delicate balance between fiscal responsibility and the needs of a country grappling with economic strain. As the government seeks to address pressing service delivery needs, it has proposed a combination of VAT increases, no inflationary adjustments for income tax brackets, and a focus on infrastructural investment.

Property experts and economists have weighed in on the impact of these measures, offering insights into how they will influence the local real estate market and broader economic landscape.

VAT Increase: A small hit to Consumers and the Property Market

One of the key elements of the 2025/6 budget is a proposed increase in the VAT rate by 0.5%, effective from 2025. This will bring the VAT rate to 15.5% in 2025/26, with a further increase of 0.5% the following year, culminating in a 16% VAT rate by 2026/27.

This decision was made in light of the government's need to raise R28 billion in additional revenue for 2025/26. While some economists argue that this increase is necessary to address the country’s growing fiscal deficit, property experts caution that this could dampen consumer spending.

Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, welcomed the fact that the VAT increase was lower than initially anticipated, avoiding a potentially damaging 2% hike. “Had the VAT been increased by 2%, we would have seen a significant slowdown in the positive momentum that has been achieved through recent interest rate cuts,” says Goslett.

However, he acknowledges that the 0.5% increase, coupled with other tax adjustments, will still put pressure on household budgets. The increase will affect the property market in several ways, notably by raising the overall cost of property acquisition. This is particularly relevant to those purchasing new developments, where VAT is included in the price. Goslett warns that this could suppress property transactions, particularly among first-time buyers.

Pressures on Household Budgets and Property Affordability

The budget also highlights significant pressures on South African households. The failure to adjust personal income tax brackets in line with inflation has led to concerns over "bracket creep," where taxpayers fall into higher tax brackets without a corresponding increase in their income. This could result in reduced disposable income, further constraining household spending and savings.

“The lack of inflation-linked tax bracket adjustments will reduce disposable income, which could directly impact property purchases,” says Goslett. He notes that fewer potential buyers could lead to reduced activity in the property market, especially in the mid- to high-end segments. As affordability becomes more of an issue, rental demand could rise, driving up rental prices. The resulting slowdown in property transactions could also hurt the income of real estate agents, adding another layer of strain to the sector.

While VAT does not apply directly to the sale of existing residential properties, it is relevant for home-related services, legal fees, and agent commissions - all of which are typically VAT-inclusive. This marginal increase will raise the overall costs associated with property transactions, potentially dampening the market further.

Positive Infrastructural Developments: A Boost for Long-Term Growth

While the budget’s fiscal measures present challenges in the short term, the government’s focus on infrastructural investment is seen as a potential catalyst for future growth in both the property sector and the broader economy. Dr. Andrew Golding, CEO of Pam Golding Properties, views this aspect of the budget as a positive development, particularly in key property growth hubs.

“Infrastructure investment is crucial for fostering economic growth, creating jobs, and enhancing property development,” says Golding. “Improved transport, energy, water supply, and sanitation systems attract both commercial and residential property development, fuelling the economy in these areas.”

The government has allocated over R1 trillion towards public infrastructure spending over the next three years, with significant portions earmarked for transport and logistics (R402 billion), energy infrastructure (R219.2 billion), and water and sanitation (R156.3 billion).

This includes investments in road networks, commuter rail services, and water projects like the Mkhomazi Dam. Such investments are expected to create economic hubs that attract both business and residential property development, supporting property price growth in areas with improved infrastructure.

Golding points to the ongoing semigration trend, where homebuyers are relocating to municipalities with better infrastructure. “The quality of infrastructure in an area is a key factor for property buyers. Areas with reliable infrastructure see greater demand for housing, which leads to capital appreciation and a boost in rental income potential,” he adds.

A Mixed Bag for Property Investors and Homebuyers

From a property investment perspective, there were mixed reactions to the budget. On the one hand, the VAT increase, higher electricity costs, and inflationary pressure on households could dampen demand for new properties, particularly in the residential sector. On the other hand, the adjustments to transfer duty thresholds are seen as a positive development for first-time homebuyers. The threshold for transfer duty exemption has been lifted from R1.1 million to R1.21 million, which could make homeownership more accessible for those at the entry level of the market.

However, Golding warns that the lack of adjustments to personal income tax brackets could significantly impact affordability for buyers across income groups. “While the transfer duty adjustments are a step in the right direction, the overall fiscal pressure on consumers is likely to keep many from entering the property market,” he states.

A crucial aspect of the budget is the government’s decision not to increase the fuel levy, a relief for consumers who are already burdened by high fuel and transport costs. This could help mitigate some of the negative effects of the VAT increase. Similarly, the increase in VAT-zero rated food items, such as canned vegetables and organ meats, provides some relief to low-income households, but the overall effect of VAT increases on living costs remains a concern.

The Way Forward: Stabilising the Economy and Encouraging Investment

While the immediate effects of the budget may place strain on consumer spending and the property market, there are signs of cautious optimism for the longer term. The government’s focus on fiscal consolidation, which includes measures to stabilize debt and enhance the efficiency of tax collection through the South African Revenue Service (SARS), is viewed as critical for fostering macroeconomic stability.

“The budget’s emphasis on fiscal consolidation and infrastructure development is encouraging,” says Golding. “If the government can maintain a focus on economic stability and attract both domestic and foreign investment, South Africa could be on a path to sustained growth in the coming years.”

Goslett agrees, noting that despite the immediate financial pressures, the government’s commitment to infrastructural development and fiscal responsibility could lay the foundation for a more stable and resilient economy. “Stability and cooperation within the Government of National Unity, as evidenced in this budget, are crucial for investor confidence,” he says.

In conclusion, while the 2025/6 budget presents several challenges for South Africa’s property market, especially concerning affordability and consumer spending, the long-term prospects look promising.

With strategic infrastructural investments and a focus on fiscal consolidation, South Africa may be poised for recovery, which could ultimately benefit the property sector. The balance between addressing immediate financial pressures and laying the groundwork for future growth will be key in shaping the country’s economic trajectory.

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