The slight VAT increase announced by Finance Minister Enoch Godongwana when he tabled the 2025 Budget on Wednesday may raise the cost of purchasing properties, influencing buyers’ affordability.

Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, said if affordability does become more of a concern, more people may opt to rent rather than buy, driving up rental demand and possibly rental prices.

“Lower transaction volumes would then slow property price growth, particularly in the mid-to-high-end market segments. This will also have a knock-on effect on real estate agents.

"A slowdown in sales would impact their commission-based earnings, which could cause the real estate sector as a whole to contribute negatively towards economic growth,” Goslett warns.

Rhangani Mbhalati, executive chairman at Chapu Chartered Accountants, said this budget introduces measures that, while presenting certain challenges like the VAT increase, also offer opportunities through infrastructure investment and economic growth.

These factors are likely to have a significant impact on the broader South African economy. “Infrastructure projects are expected to generate employment, boosting disposable income and stimulating demand in various sectors, including real estate,” Mbhalati said.

The executive chairman said that as the economy grows and employment opportunities expand, rental demand might rise, potentially leading to increased rental rates.

“The budget aims to stabilise government debt at 76.2% of GDP by 2025/26, promoting fiscal responsibility. This stability is crucial for maintaining investor confidence and supporting sustainable economic growth.

"The reduction of Eskom's debt relief package by R20 billion reflects the utility's improved financial health. A more stable energy supply is essential for economic activities, indirectly benefiting the property market,” Mbhalati added.

Meanwhile, Mariël Burger, area manager at Pam Golding Properties for Cape Town North, said the rental market in Bellville, Durbanville and Parow is experiencing strong growth.

“Some of the reasons for this include an influx of residents from other provinces to the Western Cape and the area’s proximity to business hubs like Tyger Valley and Century City. Demand is outpacing supply, so the market has become more competitive, with resulting increased rentals and a shortage of rental stock.

"Significant numbers of people are moving to Bellville, Durbanville and Parow from other regions around South Africa. Many of these new arrivals are renting while they look for the right property to buy, which has increased the demand for rental properties.”

According to the TPN Rental Market Strength Index, the national residential vacancy rate has dropped to 4.42%. This is the lowest level since TPN began tracking this data in 2016, indicating that more people are seeking rental accommodation.

This is particularly true in the Western Cape, where the vacancy rate is notably lower at 1.51%.

“The TPN index shows a score of 76.85 points for demand, which is significantly higher than the equilibrium point of 50. This increase suggests that demand is outpacing supply, which is crucial for landlords as it often leads to higher rental prices,” Burger said.

Burger added that tenants in Bellville, Durbanville and Parow generally look for spacious properties that offer good value for money, and proximity to amenities is also important.

Unfurnished properties are most in demand, although there’s also a market for furnished homes. Families and professionals tend to look for homes with two or more bedrooms.

Houses and townhouses are particularly popular among families, whereas flats are often sought after by professionals who want smaller, more manageable living spaces.

Goslett said they were relieved that VAT has not increased by the initially proposed 2%, as this would have slowed the positive momentum that has already been gained through the last few rounds of interest rate cuts.

However, he said the 0.5% VAT increase, alongside other changes to help fund government spending, will still have an impact on consumer spending. For example, failing to increase medical tax credits is likely to cause further strain on household budgets, which could make affordability a rising concern.

“It is disappointing that personal income tax brackets were not fully adjusted for inflation. Without a proper inflation-linked tax bracket adjustment, middle- and higher-income earners will pay more in real terms due to ‘bracket creep’.

"This effectively reduces their disposable income, leaving less money for savings, home loan repayments, and property investments,” Goslett said.

“The proposed changes will inevitably add further financial strain on consumers already grappling with high unemployment and sluggish economic growth. As a result, fewer buyers are likely to be able to afford property purchases, which could lead to a decline in market activity and overall transaction volumes,” Goslett added.

In addition to this, although VAT is not directly charged on the sale of existing residential properties, Goslett explained that it does apply to new developments, legal fees, agent commissions, and home-related services.

“Even this small increase in VAT will, therefore, raise overall property acquisition costs, which could dampen activity within the local property market,” he noted.

Independent Media Property

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How the slight 2025 VAT increase could shift buyers to renting instead of purchasing