The allocation of resources towards infrastructure development has been a highlight of the Medium-Term Budget Policy Statement for business and property professionals who agree that the country needs to “build”.
They also greatly welcomed the most positive message of Finance Minister Tito Mboweni’s speech, which was that the economy is expecting a rebound in this quarter and return to positive growth next year.
The development of social housing ( Flisp) will receive a R2.2 billion injection while Berry Everitt, chief executive of the Chas Everitt International property group noted that more than R340 billion has been allocated to build new hospitals in KZN and the Western Cape, redevelop 12 harbours, build new schools and improve more than 3000 others, and construct new dams, roads and rail networks.
“Unemployment is currently one of South Africa’s biggest problems and we hope that these projects will be implemented without delay and will really create additional permanent jobs, followed by increased demand for homes which will further sustain the real estate market.”
But while this provision has been made for the extension of hospitals and other infrastructure development, Simon Norton, executive director of International Zinc Association Africa Desk says more strategic thinking regarding new builds is needed.
“This means taking an urgent approach and action which considers capital investment in mineral beneficiation to help address our most pressing challenges in a sustainable way. We need a zinc refinery in South Africa and soon. We need to be looking at how new build projects are designed to ensure that they are drawing on well-known engineering practices to ensure the longevity of these massive investments.”
He says hot-dip galvanising of infrastructural steel is one such critical way to do so as the steel used in infrastructure developments, particularly at the coast, must be galvanised to ensure an extended life of plus 30 years and dramatically reduced maintenance.
“We must stop squandering huge amounts of money on worthless projects such as SAA and Denel – the time for decisive action is now in 2020.” Gerhard Kotzé, managing director of the RealNet estate agency group also welcomed the allocations to support job creation initiatives, especially those that aim to create new infrastructure and repair the country’s “decaying” road and rail networks.
“Good infrastructure is not only essential for a functioning economy, but creates confidence among investors and, through them, further economic growth without the government having to borrow more money.”
He also hailed the R2.2 billion social housing subsidy scheme and the R7 billion to the land bank and thus the farming community.
“In addition, it was good to hear that the applications that will allow cities such as Cape Town and Johannesburg to provide their own power are being fast-tracked – and that almost 12MW of additional power from Independent Power Producers will be available soon. This will hopefully mean that load shedding becomes a thing of the past.”
While the real estate sector is “currently performing very well” in spite of the major contraction in the economy this year, Kotzé says it will be difficult to sustain this momentum without the consumer and business confidence that comes from a growing economy in which new jobs are being created.
The planned infrastructure initiatives should therefore provide “further impetus” for a residential property market that has already rebounded on the back of the low-interest rates, Everitt says.
“The sector of the market with home prices below R1.5m is especially active, and first-time buyers account for more than 60% of transactions in this category, which means the market is actually expanding. Home prices are currently also up by more than 2% year-on-year, contrary to what we expected after the hard lockdown in the second quarter.”
Carl Coetzee, chief executive of BetterBond agrees that while the budget painted a “bleak picture of a country in the grips of a severe recession”, it is not all doom and gloom.
“Five consecutive repo rate cuts since the start of the year, resulting in a prime lending rate of just 7%, have provided a welcome stimulus for the residential property market, which is already showing signs of a steady recovery. Buyers who have the means are making the most of this record-low prime lending rate, and the increase in first-home buyer applications for home loans bodes well for a sustained recovery in this sector.”
Ultimately, creating confidence and positive sentiment in the economy is key, says Andrew Golding, chief executive of the Pam Golding Property group.
“Confidence and within that the key ingredient of positive sentiment is a key driver of investment not only in the economy in general but a critical factor which impacts the residential property market and its ongoing sustainability.”
And while the property market has in recent months experienced a surge in uptake among home buyers around the country – particularly in major centres, key hubs and high demand nodes, partly due to a pent-up demand post lockdown, he says the economic effects of the pandemic and the lockdown itself will still play out for many months to come.
“So it is good news to hear that government has recommitted to plans to control debt while furthering economic growth through infrastructural investment. It is hoped that structural reforms will help revive business confidence and encourage the private sector to invest in the infrastructure drive.”