The South African government’s proposal to increase VAT from 15% to 17% has sparked concerns across various sectors, with experts warning of its potential impact on consumers and the property market.
According to Antonie Goosen, principal and founder of Meridian Realty, the increase could significantly affect homebuyers, sellers, and investors.
“A VAT increase means higher costs for essential goods and services, which will reduce disposable income for prospective homebuyers,” said Goosen. “When affordability decreases, banks may tighten lending criteria, making it even more difficult for buyers to enter the market.”
While VAT does not apply directly to the sale of existing residential properties, it does impact new developments and construction services, which could drive up property prices.
“Developers facing increased costs will inevitably pass them on to buyers, potentially pricing many out of the market, especially in the mid-range and affordable housing sectors,” Goosen explained.
The VAT increase would also have a knock-on effect on related services, including property maintenance, renovations, and estate agency fees, all of which are VAT-inclusive expenses. Sellers may find it more expensive to prepare their homes for sale, while agencies might need to adjust commissions to compensate for rising operational costs.
“A slowdown in market activity is likely,” said Goosen. “With consumers under more financial pressure, major purchases like property could be delayed, affecting sales volumes and overall market confidence.”
He also warned that rental prices could increase as landlords pass on higher costs to tenants, exacerbating affordability issues in an already challenging economic environment.
Foreign investors, who are critical to the South African property market, may also be deterred by the increased tax burden. “Higher transaction costs and economic uncertainty could make South Africa a less attractive investment destination,” said Goosen.
While the government argues that the VAT hike is necessary to address budget deficits and support essential services, Goosen believes alternative revenue strategies should be explored.
“Instead of a broad-based VAT increase that disproportionately impacts middle- and lower-income earners, the government should focus on improving tax compliance, curbing wasteful spending, and creating policies that stimulate economic growth,” he suggested.
Despite the challenges, Goosen remains optimistic about the resilience of the South African property market. “Buyers and sellers need to stay informed, work with experienced professionals, and make strategic decisions to navigate these changes,” he advised.
The proposed VAT increase is set to be debated in Parliament, with stakeholders from various industries voicing their concerns about its broader economic implications. For the property market, the coming months will be critical in determining how these changes will unfold.
