Category: Economy

Disappointingly, there is material fiscal slippage relative to the Budget initially read in February 2018. A main budget deficit of -4.4% of GDP is projected for 2018/19, compared with the initial estimate of -3.8% of GDP. The deficit increases to -4.7% of GDP in 2019/20. This compares with an estimated deficit of -3.8% of GDP for 2019/20 projected in February last year.

Following fiscal year 2019/20, the deficit does decline a little, but remains wide at -4.55 of GDP in 2020/21 and -4.3% of GDP in 2021/22.

The consolidated budget deficit also remains wide, increasing to 4.5% of GDP in 2019/20 from 4.2% of GDP in 2018/19, before easing to 4.0% of GDP by 2021/22.

Also, after accounting for the borrowing requirement of SOCs and municipalities the total public sector borrowing requirement is 6.5% of GDP in 2018/19, which declines in 2021/22, but remains elevated at 5.5% of GDP.

Worryingly, the main budget primary deficit (revenue less non-interest spending) increases to -1.0% of GDP in 2019/20 from -0,8% in 2018/19 and remains in deficit over the medium term. Accordingly, the government’s debt ratio continues to increase.

Specifically, the gross loan debt is projected to increase to 56.2% of GDP at end 2019/20 from 55.6% of GDP at end 2018/19. Note that the government’s borrowing requirement in 2019/20 is partially funded by running down its cash balances by R71.6 billion. Hence, its net debt ratio (gross loan debt less cash balances) increases faster than the gross loan debt ratio – from 49.9% of GDP at end 2018/19 to 52.3% of GDP at end 2019/20.

Ultimately, the gross loan debt ratio only stabilises in 2023/24 at a projected level of close to 60% of GDP.

Government gross loan debt


Source: SA Reserve Bank, SA National Treasury

The debt level, in itself is not especially high relative to GDP. However, given persistent sovereign debt rating downgrades the real interest rate government pays on new debt is high relative to GDP. Hence, in the absence of a substantial improvement in the primary budget balance, the debt level can only be stabilised over time should the real interest rate on debt decline relative to the real GDP growth rate.

But, at present, the ratio of debt servicing cost to main budget revenue continues to increase – from an already high 14.2% of revenue in 2018/19 to 15.2% of revenue in 2021/22.

The clearest path to changing this unsustainable path would be to improve South Africa’s sovereign debt ratings or to lift real GDP growth. The former is hardly likely under current conditions, while the latter is difficult given high real interest rates and a situation in which the government is absorbing a large share of available savings to fund itself.

It should be noted that the support for state owned companies is (almost) deficit neutral. But, the point is this support is preventing expenditure saving measures elsewhere from lowering the budget deficit and constraining the level of borrowing. The build-up in off-balance sheet contingent liabilities and the accompanying deterioration in the public sector’s balance sheet are now preventing the National Treasury from sticking to its fiscal consolidation path.

Government guarantees to public institutions amount to R483.1 billion of which current exposure amounts to R372.4 billion. Eskom’s guarantees amount to R350 billion (with an exposure of R294.7 billion).

Other contingent liabilities include post-retirement medical assistance to government employees (an estimated present value of R69.9 billion), legal claims against government departments (R28.7 billion) and obligations for the Road Accident Fund (which increased by R76.9 billion to R216.1 billion in 2018/19).


New revenue raising measures amount to R15 billion in 2019/20, mainly by not compensating for bracket creep, which effectively raises personal income tax and produces an additional R12.8 billion. Meanwhile, medical tax credits are not increased, which nets an additional R1 billion in tax revenue. Changes in the general fuel levy, the road accident fund levy and the introduction of a carbon tax on fuel result in a net increase of 29c per litre in the total fuel levy. Apart from increases in excise duties (which raise revenue by R1 billion) and the “sugar” tax, additional zero rating of VAT items reduces revenue by R1.1 billion. An additional R10 billion in revenue raising measures will be announced in the 2020/21 budget.

Overall, main budget revenue increases from 25.4% of GDP in 2018/19 to 25.9% in 2019/20. Consolidated revenue increases from 28.8% of GDP to 29.3% of GDP over the same period.

Main budget balances


Source: SA National Treasury

Note, in tandem with improvements in tax administration the revenue raising measures announced result in an increase in tax buoyancy (growth in tax revenue relative to GDP growth) from 0.98 in 2018/19 to 1.31 in 2019/20. But, tax buoyancy has surprised on the low side in recent years, suggesting an element of risk, especially if tax administration does not improve.


UntitledInnovations and special provisions that apply to sectional title apartments and town houses do not necessarily apply to homeowners’ associations.

This is according to specialist sectional title attorney and director of BBM Attorneys, Marina Constas, who said that it is important to know the difference between the two and how different regulations may or may not affect them.

“The latest buzz words in the property industry are community schemes,” she said.

“The Department of Human Settlements, currently the umbrella body for such schemes, has taken control of their regulation.

“Community schemes include sectional title complexes, homeowners’ associations, shareblock developments, retirement villages, gated estates with constitutions and social co-operatives, which now fall under Section 1 of the Community Schemes Ombud Service (CSOS),” said Constas.

Sectional Titles

While the CSOS Act covers all community schemes, sectional title stakeholders must also consider the Sectional Title Schemes Management (STSMA), where recent amendments have introduced several new innovations.

“These must be understood and embraced by the sectional title industry. However, they do not automatically relate to homeowners’ associations and other community schemes,” said Constas.

Examples include the establishment of a reserve fund and a mandatory maintenance, repair and replacement plan.

“While many trustees manage their buildings very well and have always had buffer funds, an inordinate number find themselves in financial difficulty, with buildings being run from hand to mouth each month.”

“This reserve fund aims to ensure that buildings do not fall into disrepair. A related maintenance, repair and replacement plan is another completely innovation in the STSMA. From now on, the body corporate must prepare a written maintenance, repair and replacement plan which sets out the major capital expenses within the next 10 years.”

Constas pointed out that other important STSMA amendments include the stipulation that any changes to the management or conduct rules of a sectional title scheme must be approved by the chief Ombud after the necessary resolutions have been taken.

“The duties of owners have also been changed. An owner must now notify the body corporate of any change of ownership or occupancy in his unit. In terms of insurance, trustees are now obligated to obtain valuations every three years and owners may not obtain an insurance policy in respect of damage arising from risk covered by the policy of the body corporate.

“On the financial front, the complex’s budget may now include a 10 percent discount on levies if an owner’s contributions are all paid on the due dates.

“There is no longer a reference to an accounting officer in the sectional title legislation. Consequently, all buildings, even those with 10 or less units, must be audited,” she said.

Constas adde that the new concept of executive managing agents has now been included in the rules for sectional title schemes.

“Distinguishable from an ordinary managing agent, the executive managing agent actually steps into the shoes of the trustees and is liable for any loss suffered by the body corporate as a result of not applying care and skill.

“Even pets have been revised in the STSMA legislation,” Constas said.

“Disabled residents who require an assistance dog to reside with them and accompany them on common property no longer need the formal consent of trustees.”

While the STSMA’s recent innovations do not automatically apply to homeowners’ associations, Constas notes that they may choose to adopt certain provisions from the Act.

“So, if I live in a cluster golf estate development, the maintenance, repair and replacement plan does not apply in my scheme unless the scheme has legally adopted that particular rule.

“If I live in a sectional title scheme, the managing, repair and replacement rule automatically applies,” she said.

Community Schemes

The Community Schemes Ombud Service (CSOS) Act, on the other hand, applies to all community schemes.

“The service is there to regulate, monitor and control the quality of all community scheme governance documentation and provide dispute resolution,” she said.

“Whilst the CSOS Act does not specifically talk about a compliance certificate for homeowners’ association rules, the Ombud’s office will be effecting amendments to bring the law regarding registration and rule compliance for homeowners’ associations in line with sectional title schemes.

“In the interim, the Ombud’s service is encouraging homeowners’ associations to send rules in for vetting,” Constas stated.

She added that the Ombud currently has jurisdiction to deal with any disputes in cluster schemes and notes that the Community Schemes Ombud Services levy must be paid by homeowners’ associations whether they are company registered or simply have a constitution.

Constas said that although the Ombud service faced serious challenges in its infancy, great strides have been made, with over 33 000 complexes having paid over monies. Those homeowners’ associations that have not registered with CSOS will be penalised, she said.

“Now that the Ombud’s office is gaining traction, there will be time to augment and improve the provision of services and to flesh out interesting issues in the industry, such as the Air BnB onslaught,” said Constas.


Pravin_PSouth African Minister of Finance, Pravin Gordhan, announced the new budget for the 2017/18 financial year at parliament on 22 February 2017 which will affect property transactions in the following ways:


Good news – the only change in transfer duty from the previous financial year is a reduction in transfer duty. In the previous year, the threshold for imposition of transfer duty started at R750 000. It will now only start at R900 000, which will certainly help purchasers at the lower end of the market, effective from 1 March 2017.

The new transfer duty scales are the following:

Value of the Property (R)  Rate
0 – 900 000 0%
900 001 – 1 250 000 3% of the value above R900 000
1 250 001 – 1 750 000 R10 500 + 6% of the value above R 1 250 000
1 750 001 – 2 250 000 R40 500 + 8% of the value above R 1 750 000
2 250 001 – 10 000 000 R80 500 +11% of the value above R2 250 000
10 000 001 and above R933 000 + 13% of the value above R10 000 000

Please find attached herewith our updated fee sheet for property transactions.


It is important to remember that Capital gains tax (CGT) is not a separate tax but forms part of income tax. A capital gain arises when you dispose of an asset for proceeds that exceed its base cost unless excluded by specific provisions.

CGT applies to individuals, trusts and companies. The maximum rate threshold for income tax for companies remains unchanged at 28%. In the case of individuals (and special trusts) as well as other trusts the maximum rate threshold changed from 41% to 45% which will also have an effect on the calculation of CGT.

Therefore, the maximum effective rate of CGT payable on the disposal of properties from 1 March 2017 are as follows:

  • Individuals and Special Trusts           18%
  • Companies                                         22.4%
  • Other Trusts                                       36%


The rate for dividends tax is increased from 15% to 20% for the 2017/18 financial year.



articles-South_Africa_523234102South Africa’s economy will get a boost from perkier commodity prices, a benign inflation outlook, and better rains for the agriculture sector this year, a Reuters poll found on Thursday last week.
The 27 economists in the poll suggested growth in SA would accelerate to 1.1% this year and 1.6% next year. The South African Reserve Bank (SARB) estimated GDP expanded 0.4% last year.

“Higher commodity prices in combination with lower inflation, stable interest rates and a recovery in the agricultural sector should drive 2017 growth somewhat stronger than in 2016,” said Elize Kruger at NKC African Economics. Twelve of 14 economists believed that growth in SA has left the slow expansion trap seen in previous quarters.

SA’s growth has been choppy in the past two years, with negative quarterly performances three different times on an annualised basis since 2014. However, KPMG’s Christie Viljoen says positive growth is expected, though it will be very low.

Economists back their claims with the annualised growth rate in the SARB’s leading indicator, which has turned positive, but they caution about the risks that lie ahead.
SA’s economy relies heavily on the wellbeing of the eurozone, its biggest trading partner as a single region, and China, its biggest trading partner as a single country.
South African Reserve Bank keeps repo rate at 7%
Meanwhile, SA’s Reserve Bank (Sarb) governor Lesetja Kganyago announced on Tuesday that the repo rate will remain unchanged at 7%.

The prime lending rate, which is the figure charged by banks to customers, will remain at 10.5%.
The central bank’s Monetary Policy Committee (MPC) has left rates unchanged at 7% since March last year.

“The MPC remains focused on the medium to long-term inflation outlook, but the deterioration of the shorter term outlook requires increased vigilance,” says Kganyago.

He says the bank is concerned about climbing inflation, but expects it to stabilise later this year and return to the target range of between 3 and 6%.

Kganyago also says growth remains a concern.

“While some improvement is anticipated over the forecast period, growth is expected to remain below potential.”



Banks tightened standards on commercial real estate loans during the third quarter but left lending practices for commercial and industrial loans virtually unchanged overall.

This is according to a survey of loan officers released on Monday by the U.S Federal Reserve.
For U.S. households, some banks reported easing lending standards on mortgages eligible for purchase by government-sponsored enterprises and some other types of mortgages.
However, consumer loans remained much like the previous quarter.

On Commercial Real Estate, “significant net fractions of banks reported tightening standards for construction and land development loans and loans secured by multifamily residential properties,” the survey said.

The Fed survey covered the third quarter of 2016, and included the responses of 69 domestic banks and 21 U.S. branches and agencies of foreign banks.



“Given improvements in the inflation forecast, the weak domestic economic outlook and the assessment of the balance of risks, the MPC has unanimously decided to keep the repurchase rate unchanged at 7% per annum,” Governor Lesetja Kganyago said on Thursday.

At its second last meeting of the year, the MPC expressed concern about the overall inflation trajectory, which remains in the upper end of the inflation target range.

“The MPC assesses the risks to the inflation forecast to be more or less balanced at this stage. The current level of the rand is stronger than that implicit in the forecast, and, in conjunction with continued low levels of pass-through from the rand to inflation, the risks are assessed to have moderated somewhat,” said the Governor.

However, some of the positive factors impacting on the rand may be temporary, and the rand remains vulnerable to both domestic and external shocks.

Since the previous meeting of the MPC in July, the rand traded in the range of R14.73 and R13.28 against the US dollar and has appreciated by 6.3% against the US dollar.

The MPC said other major risks to the country’s inflation outlook relate to food prices, with the bank’s forecast still expecting them to peak in the final quarter of this year.

The bank still expects food price inflation to reach a peak in the fourth quarter of this year at around 12.3%.

“The future trajectory of these prices will be highly dependent on the normalisation of rainfall in the coming months. Favourable weather patterns could see food price inflation falling faster than that implicit in the forecast,” said Kganyago.

Despite a positive growth surprise of 3.3% in the second quarter of 2016, the domestic economy remains weak, said the central bank.

The Reserve Bank announced that it has revised upward the forecast for economic growth for 2016 to 0.4%.The forecasts for the next two years have been increased marginally by 0.1 %   to 1.2 % and 1.6 % respectively.

The bank noted that while growth was more favourable in the second quarter, data suggests that the improvement is unlikely to be sustained in the third quarter.

Data released by Statistics South Africa on Wednesday showed that the annual Consumer Price Index (CPI) eased to 5.9% in August 2016.

On Thursday, the bank said its latest inflation forecast has improved with inflation now expected to peak at 6.7% in the fourth quarter of 2016, compared with 7.1 % previously. Inflation is expected to average 6.4 % in 2016 and 5.8 % in 2017.

The forecast for 2018 is unchanged at an average of 5.5%.

When coming to the petrol price, the bank expects it to rise in October following two consecutive months of price declines totalling R1.17 per litre.

“The MPC is of the view that should current forecasts transpire, we may be close to the end of the tightening cycle. The committee is aware that a number of the favourable factors that have contributed to the improved outlook can change very quickly resulting in a reassessment of this view,” said Kganyago.


Source Eprop

articles-cape_town_south_africa_504099543PRETORIA – South Africa recession fears fade as manufacturing and mining sectors output rebounded, with the gross domestic product (GDP) data for the second quarter of 2016 showing growth of 3.3%.

This follows a dismal first quarter, where the economy declined by 1.2%. This marks the fastest pace of growth for South Africa since 2014, Statistics South Africa (Stats SA) said in a report released on Tuesday.

The largest positive contributor to growth in GDP in the second quarter was manufacturing, which increased by 8.1% and contributed 1.0 percentage point to GDP growth.

“We hope that these signs of growth are an early indication that the manufacturing sector, which is essentially still fragile, can move towards stabilising and strengthening. We, however, always need to be cognisant of external factors which impact on local and global demand and, therefore, manufacturing output,” industry body Manufacturing Circle executive director Philippa Rodseth said.

Mining and Quarrying recovered in the second quarter, increasing by 11.8% and contributing 0.8 of a percentage point to GDP growth.

Finance, Real Estate and Business Services increased by 2.9% and contributed 0,6 of a percentage point to GDP growth.

Statistics South Africa (Stats SA) Deputy Director-General Joe de Beer said in nominal terms, the GDP growth is estimated at R1 068 billion for the second quarter of 2016, which is R25 billion more than the first quarter of 2016.

Finance Minister Pravin Gordhan told a South African Chamber of Commerce and Industry meeting on Tuesday that he was “a little optimistic” about economic growth in the second quarter following a 1.2% decline in the first quarter.

Economists, however, warn that while the improvement is welcome, headwinds remain for the sector because commodity prices and demand have yet to fully recover.

Conditions for manufacturers remained tough, particularly given the prospect of a strike in the sector, First National Bank senior industry analyst Jason Muscat said.

He expected manufacturing data for the rest of 2016 to “be choppy, even in the absence of strikes”.

Nedbank economist Busisiwe Radebe agreed, saying that although the better-than-expected production data in May were encouraging, conditions were expected to remain subdued in 2016.

Manufacturing production, like mining, was likely to continue being adversely affected by low commodity prices that were unlikely to “reverse convincingly” in the next few months, Radebe said. Considerable global excess capacity and rising domestic production costs would also affect production negatively.

Although manufacturing output is expected to remain under pressure in coming months, a key leading indicator of activity in the sector suggests that production increased again in June. The Barclays purchasing managers’ index rose to 53.7 index points in June from 51.9 in May. An above-50 reading signifies improvement in manufacturing activity.

The manufacturing and mining sectors have been in decline for the past few years and have been the sectors to lose the most jobs.

“The manufacturing sector remains fragile, and in this environment, we hope to see as many jobs retained in the short term as possible,” Rodseth said.

The rand strengthened against the major currencies – firming 1.15% against the dollar to R14.21. It was also 1.0% firmer against both the euro and British pound, at R15.86 and R18.91 respectively.



South Africans are already under a deluge of shopping centre space before the opening of the biggest shopping centre on the continent, the R5 billion Mall of Africa in Midrand.articles-Mall_of_Africa_Waterfall_City_415991939

The question, however, is whether SA can support another mall. Many consumers are cash strapped, and already SA has the sixth highest number of shopping centres in the world — almost 2,000 — and floor space covering 23mm².

Still, some believe the market can take it.

Dirk Prinsloo of Urban Studies, a market research company specialising in shopping centre research, said that though consumers are under pressure, “the shopping centre cake is getting bigger, with growth taking place in the emerging market. We have about 5m additional households and tremendous [potential for expansion] in the retail space.”

One of the problems with newer centres, like the Mall of Africa, is that they are diverting consumers from existing ones. In smaller towns, where there hasn’t been a mall before, a brand-new shopping centre often draws retail spending away from high street shops. And Prinsloo says the market is overtraded in smaller convenience centres, where “you’ll find three or four grocery stores or supermarkets on as many corners”.

Regional or superregional malls keep on expanding because that’s where the big overseas retailers such as Cotton On, Zara and H&M as well as several more popular local brands are keen to set up shop.

A large part of the mall boom is due also to the trend of people moving to cities to get jobs — altering the complexion of society from a far more rural-based existence decades ago.

Says Prinsloo: “Urbanisation now sits at 64%, and it will grow to at least 68% by 2030.” He adds: “A lot of centres have moved very close to consumers to serve their needs. The fact that we are number six in the world confirms that the cake is getting bigger and that the black market has become the big spenders.”

However, Harri Kemp, an economist at the Bureau for Economic Research, says: “We don’t think it will [continue to] be so good given [the situation in] SA and the general economic climate. Indications are that conditions are tough in retail.”

The picture looks different for big retailers than for smaller ones.

“Those retailers that have one or two stores and cater for low-income consumers are not doing very well, and the smaller guys are coming under increasing pressure. Low- and middle-income consumers spend a large proportion of their budget on food and electricity.

“With rising prices for these goods, these consumers will have less money to spend on other products,” Kemp says.

Consumer Goods Council CEO Gwarega Mangozhe says the retailers are trying to mitigate the impact of high inflation, but it’s a tough ask.

“The aim remains to serve customers while retaining and growing market share,” he says.

The Mall of Africa is the largest shopping centre built in a single phase in SA. So what are its prospects?

“There is some potential still in the highincome group, and retailers catering for high-income consumers will probably do all right,” says Kemp. “But if things worsen, even the high-income guys will have a bit less money to spend.”

That’s a nasty scenario, and the consequences would be serious.

For one thing, according to an economic impact study commissioned by the Consumer Goods Council, no less than 23.7% of SA’s job market is in the retail sector — from the shop assistants to the packers and the truck drivers who make deliveries to the shops. That represents 2.9m jobs — crucial posts in a country where unemployment represents a bubbling crisis.

No fewer than 600,000 people work in shopping centres.

The following are examples:

Whitey Basson’s Shoprite Group employs 136,076 people, of whom 116,219 work in SA.

Woolworths employs 29,033 workers in SA. Edcon employs over 39,000 people, including 29,000 in SA.

Pick n Pay has 48,700 employees at owned stores, and 23,000 employees at franchises. It has pledged to create 5,000 jobs a year until 2020.

David North, Pick n Pay’s group executive of strategy, is positive about the future, despite the negative indicators.

He believes his company will continue hiring more people.

“We’re creating jobs because we’re opening more stores, serving more customers, and the overall spend on food and grocery products is increasing.

“Retail will continue to grow and employ more people in this country.”

Government will be hoping North is right, and the retail sector can absorb more of the country’s unemployed people — because elsewhere, the news is grim.

According to Statistics SA’s Quarterly Employment Statistics survey for the third quarter of 2015, total formal employment did not register any year-on-year growth. The “wholesale, retail and motor trade, hotels and restaurants” sector, on the other hand, grew by 1.2%.

With that sector stripped out, formal employment actually fell by 0.3% in the third quarter.

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