Tomorrow, Finance Minister Tito Mboweni will deliver his maiden budget speech in what is expected to be a difficult address.
The outcome of this speech will impact the South Africa property sector in numerous ways, with the commercial property industry likely to feel a significant impact. While SONA 2019 left uncertainty in some areas, it was made clear that there is to be a substantial investment in the economy which is great news for the real estate sector. Many expect, or at least hope for, a similar outcome from the budget speech.
Tito Mboweni had in a sense already ripped the band-aid off in his earlier Medium Term Budget Policy Statement (MTBPS) speech which he delivered in October last year, where he went on to describe a low growth outlook with less cash coming in through revenue collection, a widening deficit, increasing wage costs, and a state-owned enterprises sector mired in debt.
Low growth remains a major challenge, which is why President Ramaphosa focused on expanding the economy during SONA 2019. The President indicated that government intends on taking steps to boost economic activity and drive investment and job creation while focussing its spending on areas that can help grow the economy.
Eskom will of course be a key focus, specifically how the government plans to deal with its massive debt without attracting a credit downgrade for the country. Government will review the current Electricity Pricing Policy as part of a broader process of restructuring Eskom which we now know they intend to break up into 3 separate businesses.
It is here specifically that commercial real estate will be affected. Increasing electricity tariffs and planned outages for maintenance significantly impact retail in the sense that shops close their doors where there is no backup power. Manufacturers are also impacted by their inability to produce during power outages. All of the above leads to lower growth prospects for the country – not great for the property sector.
Commercial property usually tracks GDP growth in terms of its value which makes the short-term projections look unfavourable. That said, property is a long term purchase and the turmoil in the market could lead to buying opportunities’ for those with a strong balance sheet or ability to wait out the storm.
You can bet anyone with interests in the property sector will be watching the budget speech closely. We certainly will.