Budget focus on local government a positive for property
From a real estate point of view, one of the most important aspects of this week’s mini-budget is the fresh focus on fixing local government to ensure that municipalities can deliver what their residents need and play their proper role in fostering economic growth.
That’s the word from Stephen Whitcombe, MD of the Firzt Realty group, who says: “Local government is where the rubber actually hits the road for most citizens – and especially for property owners and investors. People are obviously reluctant to live in towns and cities that suffer from financial mismanagement, corruption, infrastructure decay and lack of service delivery, not only because it becomes unpleasant to do so, but because it is very difficult to run any kind of business or find a job under such conditions. And that has a distinctly negative effect on housing demand and property values in those locations.
“We have seen this clearly in many small towns where local government has essentially collapsed over the past few years, businesses have closed down and large numbers of residents have moved away to bigger urban centres and cities in the hope of finding better basic services and economic prospects. On a much bigger scale, it has also been evident in the significant semigration of people from Gauteng to the Western Cape, which has many well-managed and thriving municipalities in addition to the City of Cape Town.
“Indeed, figures from StatsSA show that over the five years to March 2024, Cape Town property prices rose by an average of 30%, while those in Johannesburg rose by just 8,6% - and have actually declined in the past year as high interest rates exacerbated slow buyer demand.”
Responding to the Medium Term Budget Policy Statement (MTBPS) delivered by Finance Minister Enoch Godongwana this week, Whitcombe says the newfound determination to rebuild local government and help SA’s towns, cities and metros become more efficient, attractive and safe places to live is a good indication that the Government of National Unity is working, in the sense that it is making use of any and all relevant experience and expertise to solve problems, regardless of party politics.
“We believe it will also be a major positive for the real estate market, along with lower interest rates, because it will improve consumers’ quality of life and boost their confidence in the economy and their employment prospects. In Johannesburg, for example, we are already seeing an increase in the number of buyers, especially in areas where roads and streetlights are being repaired, parks are being cleaned up and new water pipes are being laid.
“There is a lot still to be done, but there is great value for money available in this metro and the actions being taken to address urban decay, improve service delivery and fix the municipality’s finances are encouraging homebuyers and investors to move forward and make the best of the current opportunities.”
In his speech, the Minister pointed out that the local government sector carries no responsibility for the national debt and has been receiving an increasing share of the national non-interest budget expenditure for several years. It currently receives around 10% of this expenditure. Despite this, a large number of municipalities are currently facing serious governance, planning and financial management challenges, with 50 out of 257 operating under financial recovery plans and three, including the Mangaung metro, being under administration by the national government.
The seriousness of this situation is underlined in the most recent report by the Auditor General on local government audit outcomes. This reveals that only 34 municipalities (13%) received clean audits in the 2022/23 financial year. The report, released just prior to the establishment of the GNU, highlights poor compliance with municipal legislation, poor performance planning, deficiencies on 72% of the infrastructure projects inspected and poor financial management as major reasons for this state of affairs.
And it clearly makes the point that badly managed local government finances directly affect the ability of municipalities to provide services to their communities while also resulting in creditors such as Eskom and the water boards not being paid on time. This leads to ratepayers being cut off from basic services such as electricity and water and damages the greater economy by making it hard for local businesses to operate, grow and create more employment.
What is more, the report expresses particular concern at a decline in the financial health of SA’s eight large metros, which have struggled to improve their revenue-collection levels despite implementing financial recovery plans and turnaround strategies. The metros account for 60% of all economic activity in SA and house 60% of the population, according to the Minister, and municipal reform will initially be focused on these areas to enable them to generate revenue surpluses that can be used to increase investments in their own infrastructure.
The good news, says Whitcombe, is that 70% of the municipalities that have applied for Eskom debt relief have been approved and stand to benefit from a one-third debt write-off if they comply with the debt relief conditions.
In addition, new procurement regulations for municipal projects will be in place by June next year to encourage and facilitate much needed private sector participation in local government projects. Meanwhile, national and provincial government departments are being urged to urgently settle their quite substantial debts to municipalities so that they can keep up with current payments to Eskom, the water boards and other creditors.
Issued by Firzt Realty
For media inquiries contact
Stephen Whitcombe on
082 412 2949
Or visit www.firzt.co.za
About Firzt Realty
Established in 2003, Firzt Realty initially focused on residential real estate but has since expanded to offer a broad range of services in both the residential and commercial property sectors, including sales, rentals, auctions and property management.
Author Firzt Realty