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Tax hikes and expropriation debate dampens property market

24 Apr 2018

The indirect tax hikes announced in this year's Budget and the proposed expropriation of land without compensation have depressed confidence in the residential property market in the first quarter of this year.

Absa's latest homeowner sentiment index released yesterday revealed that confidence in the residential property market declined to 75 percent in the first quarter from 82 percent in the fourth quarter of last year.

Jacques du Toit, a property analyst at Absa Home Loans, said the sentiment was now on a par with a year ago. He said the trend came against the background of factors impacting consumers financially, such as a number of indirect tax hikes announced in the Budget in February and the widely-debated aspect of land expropriation without compensation.

Positive factors mentioned by homeowners was that property was a secure asset (35 percent) and still increased in value (28 percent).

The major negative factors were land expropriation without compensation that had caused uncertainty about property as an investment (28 percent) and political uncertainty (23 percent).

Du Toit said sentiment sub indices were either unchanged of slightly lower in the first quarter of this year compared to the previous quarter, with the exception of the sub index on selling property.

The sub index on selling property increased further to 46 percent in the first quarter from 41 percent in the previous quarter and the 34 percent low measured in the second quarter of last year.

Du Toit said the main reasons for selling property included that property prices were relatively high and homeowners may get a good price when selling (38 percent); many people wanted to own property, which was supportive of selling (10 percent); and the rand exchange rate was strong (6 percent).

More cautious However, Du Toit said the other trends in the sub indices indicated that consumers had become somewhat more cautious about property market conditions early this year.

The property buying sentiment remained unchanged at 70 percent in the first quarter from the previous quarter, but well above the low of 60 percent recorded in the first quarter of last year, while the percentage of respondents who were positive about property as an investment declined to 81 percent in the first quarter from 83 percent in the fourth quarter of last year, largely because of land expropriation without compensation.

There was a decline in the positive homeowner sentiment index for all of the major provinces of Gauteng, the Western Cape and KwaZulu-Natal, with declines to 76 percent from 82 percent in Gauteng, to 69 percent from 80 percent in the Western Cape and to 72 percent from 79 percent in KwaZulu-Natal.

Du Toit said the relatively sharp 11 percentage point drop in property market sentiment in the Western Cape in the first quarter compared to the previous quarter was believed to be closely related to the ongoing severe drought conditions, especially in the Cape Town metropolitan municipal area.

Commenting on the property market sentiment outlook, Du Toit said it may be hampered over the short to medium term by financial strain experienced by consumers against the background of higher indirect taxes and uncertainty related to the aspect of land expropriation without compensation.

He said the combined effect of these factors would be reflected in property market activity.

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