If affordability does become more of a concern, more people may opt to rent rather than buy their own property.
Image: Independent Newspapers.
The slight VAT increase announced by Finance Minister Enoch Godongwana during the 2025 Budget presentation may raise the cost of purchasing properties, impacting buyers' affordability.
If affordability becomes a significant concern, more individuals may choose to rent rather than buy, leading to increased rental demand and potentially higher rental prices, says Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa.
He warns that "lower transaction volumes would slow property price growth, particularly in the mid-to-high-end market segments."
This slowdown could also adversely affect real estate agents, as a decline in sales would impact their commission-based earnings, ultimately contributing negatively to economic growth.
Currently, the national residential vacancy rate has dropped to 4.42%, according to the TPN Rental Market Strength Index — the lowest level since TPN began tracking this data in 2016.
This indicates a growing demand for rental accommodation, particularly in the Western Cape, where the vacancy rate is notably lower at 1.51%.
Mariël Burger, area manager at Pam Golding Properties for Cape Town North, says the TPN index shows a score of 76.85 points for demand, 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."
The rental market in Bellville, Durbanville, and Parow is experiencing robust growth, she says, driven by 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, making the market more competitive, resulting in increased rentals and a shortage of rental stock," Burger explains.
Many newcomers are renting while searching for the right property to buy, further increasing the demand for rental properties.
Goslett says that although VAT is not directly charged on the sale of existing residential properties, it does apply to new developments, legal fees, agent commissions, and home-related services. "Even this small increase in VAT will raise overall property acquisition costs, dampening activity within the local property market," he says.
Goslett expresses relief that VAT has not increased by the initially proposed 2%, as this would have hindered the positive momentum gained from recent interest rate cuts.
However, he warns that the 0.5% VAT increase, along with other changes to fund government spending, will still impact consumer spending.
For instance, the failure to increase medical tax credits is likely to strain household budgets, making affordability a growing concern.
"It is disappointing that personal income tax brackets were not fully adjusted for inflation. Without proper inflation-linked adjustments, middle- and higher-income earners will pay more in real terms due to ‘bracket creep,’ effectively reducing their disposable income and leaving less for savings, home loan repayments, and property investments," Goslett explains.
Rhangani Mbhalati, executive chairman at Chapu Chartered Accountants, notes that the budget introduces measures that, while posing challenges like the VAT increase, also present opportunities through infrastructure investment and economic growth.
"Infrastructure projects are expected to generate employment, boosting disposable income and stimulating demand in various sectors, including real estate," Mbhalati adds. He emphasises that as the economy grows and employment opportunities expand, rental demand may 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, and a more stable energy supply is essential for economic activities, indirectly benefiting the property market.
Tenants wants and needs
Burger says tenants in Bellville, Durbanville, and Parow generally seek spacious properties that offer good value for money, with proximity to amenities being crucial.
Unfurnished properties are in high demand, although there is also a market for furnished homes.
Families and professionals typically look for homes with two or more bedrooms, with houses and townhouses being particularly popular among families, while flats are often sought after by professionals looking for smaller, more manageable living spaces.
Meanwhile, Jonathan Kohler, founder and CEO of Landsdowne Property Group, outlines five reasons why investors and landlords should consider using a qualified rental agent: