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Mid-Term Budget Impact on SA Property Investment


The South African 2013 Medium-Term Budget Policy Statement (MTBPS) announcement demonstrates that government is serious about cutting back on excessive internal expenditure.

Implementing the National Development Plan (NDP) will be strictly managed with an increase in resources towards health and education, concurrently budgets related to infrastructure, job creation and social security, will grow. GDP is anticipated to grow at a slow and steady rate with inflation remaining below 6%.

Finance Minister Pravin Gordhan relayed a clear message for the need to increase savings and investments in order to expand and diversify the economy, as economic growth is the only path to a sustainable and optimistic future.

“The projected increase in rail capacity, as outlined by the NDP (National Development Plan), will have a direct impact on commercial and industrial property demand and development within the new routes. In addition, the approved tax incentives on industrial development projects, will both support property and investment opportunities,” explains High Street Auctions Joint Managing Director, Lance Chalwin-Milton.

The big news coming out of the medium-term budget policy statement, was the sharp cuts to civil servants spending at the state's expense.

While Gordhan is maintaining spending limits and curbing wage growth, allowing him to meet this year's budget deficit target, borrowing will surge in the next three years. That raises risks for South Africa as credit rating companies such as Moody's Investors Service warn of another downgrade and the US Federal Reserve scales back its monetary stimulus, boosting bond yields.

National Development Plan
Despite the growth of national debt, the budget made strong, repeated commitments to the NDP.

"The budget framework … seeks to transform the quality of public expenditure by shifting resources to implement National Development Plan priorities, improving infrastructure allocations, and stepping up efforts to combat waste, inefficiency and corruption. Government is preparing cost-containment instructions to limit wasteful expenditure," said the minister.

In line with NDP priorities, health and education continues to receive the largest allocations, while budgets related to infrastructure, jobs, local government and community development "grow strongly".

According to the policy framework, R2.5-billion has been reprioritised through the fiscus to support infrastructure modernisation projects. The baseline of the transport, energy and communications function is projected to grow by an average annual rate of 7.9% to R105.8 billion in 2016/17.

Investor sentiment
South Africa's reliance on foreign investors to finance the budget deficit has increased in recent months, adding to the nation's economic risks, according to the Treasury.

Investor sentiment is volatile and capital allocation "is likely to shift as the US monetary authorities taper their asset purchase programme", it said.

"There is no magic in those ratios," said Lungisa Fuzile, director general of the treasury. "We would prefer to keep these ratios as low as possible but in the context of a counter-cyclical fiscal stance you don't really target them. You tolerate a bit of a deterioration."