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Investors make the most of Section 12J Tax Incentive

The close of the 2020 financial year this February brought a scramble of last-minute investors through the Section 12J gates, angling for that most welcomed tax rebate. Cape-based Flyt Property Investment saw their rate of capital raising double within the last week of February as investment into their Flyt Hospitality Fund caught the attention of property investment group FWJK. A total of R170million has been raised since the launch of the fund in November last year, with R80million subscribed within the last week.

Zane De Decker, managing director at Flyt Property Investment, says that his team was burning the midnight oil, processing a flurry of investors into their fund. “We finally see that investors are responding to this incredible incentive provided by SARS. 100% of your tax back should be a no-brainer and good quality hospitality property, as an underlying investment, is a winning combination,” he says. “We’ve taken our time in formulating an attractive investment and lowered our entry-level in order to cast our net wider, allowing more investors the option of jumping onto the bandwagon.”

Flyt Property Investment’s hospitality fund entry options have been particularly appealing to investors looking to cash in on the 12J incentive. The fund managers, together with 12J specialists Anuva Investments, introduced a loan option whereby the total investment amount can be subscribed via a structured bridging loan. Flyt provides qualifying investors with an interest-free loan with a fixed administration fee of 2,5%. Pretty competitive if one compares most bridging finance in South Africa, available at between 12% to as much as 20% interest on the loan amount.

Many of the last-minute contributions came by means of international property group FWJK who found the structure to be a worthwhile tax benefit for their investors and co-developers. FWJK has developed property assets to the value of R8 billion and is most noted for their residential, medical, commercial and industrial property developments and, more recently, the Zero to One development touted to be Cape Town’s tallest building. Of their 49 total developments, three are apartment hotel developments located in KZN’s Umhlanga and the Cape Town suburbs of Sea Point and Clifton, and available to investors via the Flyt Hospitality Fund. This recent move into the 12j space has resulted in these projects being close to 100% sold.

Commenting at a 12J closing event this week, Dave Williams Jones, CEO of FWJK, said, “We expect the number of investors into this fund to grow exponentially as the benefits of investing via Flyt’s Section 12J fund and specifically in FWJK products becomes more widely known.”

Section 12J of the Income Tax Act was introduced in 2009 by the South African Government to encourage South African taxpayers to invest in local companies and receive a 100% tax deduction of the value of their investment. Flyt Property Investment introduced its Section 12J hospitality offering to investors in November 2019.

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Flyt Property Investment launches Africa’s first property-backed security token

Cape-based property investment specialist Flyt Property Investment have launched Africa’s first property-backed security token. The Flyt token (FLYT), which resides on the Ethereum blockchain, allows investors to subscribe for, redeem and transfer shares in the Flyt Hospitality Fund, a South African Section 12J fund investing in hospitality property and apart-hotels. One Flyt token is equivalent to one share (which is currently valued at R100) in the Flyt Hospitality Fund.

The breakthrough in fund technology has been developed in conjunction with Swiss-based financial technology supplier Bakari. “South Africa has a developed, forward-looking financial sector and it is not surprising to see it on a short list of countries embracing next-generation financial technology. We are proud to be working with the Flyt Hospitality Fund, which is leading in innovation by using technology to offer responsible investments directly to individuals,” says Ciaran MacDevette, Co-Founder of Bakari. This is the first example of a blockchain-based token servicing a fund operating within a regulated, legal and compliant environment in Africa. Investors who are familiar with Ethereum blockchain can manage their Flyt token via their digital wallet. FLYT is an ERC-20 compatible token on the Ethereum blockchain which can be self-custodied in existing Ethereum wallets.

Zane De Decker, MD of Flyt Property Investment says that the move to digital asset brings an exciting option for investors. “Our aim is to be ahead of the curve and with that in mind, we are thrilled to present our investors with varied options of entry. An investment into the Flyt Section 12J hospitality fund is available via old-school investment into the fund and now, for those who support the blockchain technology, via the Flyt token,” he explains. The token allows for easy, liquid infrastructure where investors can manage their asset through a trusted blockchain.

The Flyt Hospitality Fund is a property-backed section 12J fund, investing in strategically located hospitality properties with a focus on sectional-title serviced apartments and student accommodation. A minimum investment of R50 000 is required, via the token or share option, with a cut off imposed by SARS of R2.5million.

Section 12J of the Income Tax Act was introduced in 2009 by the South African Government to encourage South African taxpayers to invest in local companies and receive a 100% tax deduction of the value of their investment. To date, South Africans have invested over R6 billion into the 12J sector.

Flyt token digital subscriptions can be made via: flyt-token.bakari.ch

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Flyt launches Eaton Square, Diep River

The long-awaited launch of Flyt Property Investment’s mixed-use development, Eaton Square in Diep River, Cape Town, was recently held on the first floor deck of the property. A celebration of the completion of the 2-year-long project was enjoyed by the building contractor GVK-Siya Zama as well as stakeholders, investors and buyers. Two of the completed furnished apartments were made available for viewing.

Over the last few years, Cape Town’s historic suburb of Diep River has been flagged by property experts as a promising urban renewal node. Its ideal location – proximity to schools, public transport (Metro Rail’s Southern Line as well as major bus routes), hospitals and shopping centres – makes it an ideal prospect for new families and up-and-coming professionals.

Eaton Square offers 66 sectional title 1- or 2-bedroom apartments, all with undercover parking. Architect Sebastian van Greunen has included beautiful communal areas, a first-floor rooftop entertainment deck, a co-working coffee shop/restaurant that will offer residents a meal service, and a private dining room that residents can book for entertaining guests.

All units have been designed with the ‘plug and play’ or co-living concept front of mind, as explained by Flyt’s managing director Zane De Decker. “Over the last two years we have researched worldwide trends, worked extensively with property professionals and consulted the best, most forward-thinking minds in the business to truly trailblaze a new take on the modern-living concept. We want our residents to have the option of arriving with a suitcase and literally plugging in.” With this in mind, Flyt are offering a fully managed solution to investors, which delivers efficiently designed ‘shareable’ apartments, tried and tested furniture packs, up-to-date technology, and rental management with flexible rental options (days, weeks, months) –  all suited for investors who would like to purchase with the intention of renting the unit out for optimal returns.

Units are also available to purchase in Flyt’s Section 12 J venture capital tax incentive fund that offers South African taxpayers a 100% tax deduction on the amount invested.

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Flying High

Following the launch of Flyt Property Investment earlier this year, this dynamic property development and investment company has already made great strides in the industry. September saw their newest development, Eaton Square presented to market whose co-living concept has been a big drawcard. MD, Zane de Decker, continues to spread his proverbial wings with the expansion of an already formidable team by taking on additional staff to assist with brand and business development, the unveiling of a second property, Wink Aparthotel, and the launch of an exciting investment vehicle called Flyt Hospitality Fund.

Ever a champion supporter of aspiring entrepreneurs, Zane’s first hire was young David Venter, who comes with a degree in Business and Economics, diplomas in Stock Trading RPEs and Property Management at UCT, who, in his 3rd year of accounting, brings a diverse set of skills to the Flyt deck where he will be assisting in streamlining business operations.

Hot on his heels, all the way from Germany, is Julia Hecht, an administrative guru. Armed with a certificate in Industrial and Organisational Psychology at UNISA, South Africa, a BA International Relations and Management at the University of Applied Sciences in Regensburg, Germany, and an MSc International Business and Management Degree at Liverpool John Moores University in the UK, along with a calm demeanour and phenomenal organisational skills, she will ensure that the office runs smoothly and efficiently.

Two no-brainers were retaining brothers Darryn and Justin van der Poel, whose vast experience in their family’s property business presented an opportunity for Flyt to secure these two successful industry experts. Darryn’s proficiency in real estate, together with his work on carbon credit and renewable energy consulting projects backed by a Bachelor of Commerce degree in Finance and Economics, set the tone for a career in the property space spanning some 15 years. He has been appointed as Investment Consultant at Flyt to build shareholder value for investors through his knowledge, expertise and global business network.

After completing his Bachelor of Commerce degree in Marketing Management in 2015, Justin assumed the role of portfolio manager, managing the residential portfolio in the family business and went on to found his own company with two partners – a boutique-style property and investment brokerage. His excellent people skills and an innate understanding of the property space have enabled him to build an impressive client base through securing attractive property opportunities for his clients. Justin has been tasked with overseeing sales and investments for Wink Aparthotel, launching Feb 2020.

Jerri Mperdempes, an experienced commercial property broker and business owner whose positive, tenacious and innovative approach and knowledge of the local property market have resulted in a successful career path, will be key to assisting Flyt with new business development. He will be working closely with Sebastian van Greunen, development manager, whose architectural and design flair, and ‘out of the box’ thinking has established himself as a sought after commodity in the Cape Town property arena.

Last but by no means lease(t) is Ryan Flowers, a former colleague of Zane’s who joined the company earlier this year as asset manager. His near decade of expertise and unique skillset can best realise Flyt’s vision of the creation, delivery and management of their high quality property assets.

What they all have in common is a shared vision for the company inspired by a brilliant portfolio and offering, and a genuine love for the industry.

Watch this space!

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Purchasing and managing an investment property – a few fundamentals

Granted, the property market, especially in Cape Town CBD, has been given a shot in the arm thanks to short and medium-term-type rentals and the success of student accommodation, Airbnb, Bookings.com and the likes, but believe me, managing and making a favourable ROI on a second or third property is not a walk in the park. Getting it right, though, can be one of the best investments you ever make.

The trouble is, many investors are left wondering if they’ve left it too late: is the sector saturated, is the season over? To be honest, those who got in early have certainly reaped rewards, but what we don’t hear about is that many a ‘school fee’ has been paid on route. The buy-to-let rental market is a whole new ball game, and investors should make sure their recipe for success is fool-proof.

Being in the property game, we’ve done our homework and researched this South African market extensively. In fact, our research got us so excited; we have actually set aside a number of our apartments at Eaton Square in Cape Town to service that market specifically. We’ve selected the most suitable units, carefully selected a suitable furniture pack and refined our offering, partnered with rental operators and developed an exceptional investment for those who are looking for a managed solution. Our property development team has brainstormed with some of the most experienced and best minds in conceptualising a turnkey solution for those hands-off investors who are looking to sit back and enjoy the fruits of this excellent investment option. However, for those who’d like to fly solo, I’d recommend you make sure of a few fundamentals:

Access

Although location is important, it’s evident that the rental market is also looking for great access – walking distance to transport, coffee shops, restaurants. Seems like a no-brainer but many investors make the mistake of selecting an address above access.

Easy-peasy does it

Tenants are looking for slick, easy access with the least amount of rules, regulations, paperwork and a hassle-free process. Swift check-ins, no running around, 10 thousand phone-calls later meeting the friend of a friend who has got the key.

Services

Make sure you’ve got great Wi-Fi, there’s enough connectivity for television and cable services and parking is available.

Furniture

Yip, be prepared that your furniture is going to have a shelf-life and that pretty is not going to cut it. We’ve included a furniture pack in our units at Eaton for this reason precisely. Although you might be tempted to splash out and decorate, we’ve seen plenty of cash go out the window with bad furniture purchases

Security

Visitors are always sceptical and cautious of the area they are staying in and whether it’s safe (and so they should be). A few security checks won’t do you any harm – find out if there’s a neighbourhood watch and what the crime rate is like. Also, make sure your tenants are aware of any security concerns.

The bottom line is, if you set yourself up properly and you don’t mind managing the process yourself (trust me, it’s time–invasive and time-consuming), there’s no reason not to go it alone. If, however, you’d prefer the ‘package deal’, find a reputable developer who has, like us, done their homework and ticked off all the boxes.

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Section 12J, are you really getting it?

We have recently taken our newly launched Section 12J property fund to the investment market. I’m a property specialist, with a bit of an asset management background, so the 12J structure really appealed to me when it first caught my interest. What I’m finding is that many people we are chatting to about the tax incentive really don’t fully understand its structure and workings. If it sounds too good to be true, it probably is, right? Wrong!

The glaring misconception is that 12J merely delays tax and investors get ‘nailed in the end’ with Capital Gains Tax (CGT), but this is not the case at all.

Based on an annual income of R2.5m, let’s break it down as an example.

Patricia earns R2.5 million per year and therefore falls in the 45% tax bracket; according to the tax table, R982 000 is the total tax due by her to SARS. Let’s say she invests R1million into Flyt Hospitality Section 12J fund. This R1m is treated as an ‘expense’ or tax-deduction, so her next tax return would look very different.

R2.5m income earned, less the R1million deduction, leaves Patricia with a balance of R1.5million taxable income, equating to a tax obligation of R532 000 and a tax saving of R450 000! Better yet, if she is a salary earner and pays PAYE, then her employer would have already paid the full R982 000 to SARS and in this case, she would be due a refund from SARS of R450 000, thanks to her investment in a Section 12J fund. For self-employed individuals or companies who are subject to provisional tax, the R1million invested means they avoid paying the R450 000 and only need to pay tax of R532 000, as opposed to R982 000.

 

 

Okay, so that’s all good and well and any smart investor would grab this incentive in a heartbeat, but the confusion comes about when an investor is looking to cash in.

An investment into The Flyt Hospitality fund is locked for 5 years, so let’s say (without considering any return on the invested amount) Patricia sells her shares in the fund after 5 years for the same value (R1million). Yes, that R1million is subject to Capital Gains Tax which is calculated at 40% of the gain. So 40% of R1million is R400 000 and Patricia would be required to pay her 45% tax due to SARS of R180 000.

The bottom line?

Of her R1million Patricia pays R180 000 tax five years down the line, rather than R450 000 upfront. The number cruncher in me calculates that as a R270 000 saving and a 60% reduction on her tax bill.

What is also important to remember is that not only have you reduced your tax burden, but you have delayed it too, by a minimum of five years. If you opt to stay in the investment fund after the five-year period (you don’t HAVE to sell), you have avoided paying that tax until such time as you do sell. In the meantime, you enjoy the full benefits (capital growth and dividends) of the full investment amount. If you don’t sell your shares in the fund, you never pay the tax. Investors in the Flyt Hospitality fund who opt to stay in the fund, retain their investments at full value and receive dividends for as long as they remain invested in the fund.

I would even go as far as to break the Section 12J investment into three major opportunities:

  1. 12J converts income tax into capital gains tax (resulting in a 60% reduction of tax)
  2. 12J delays this reduced tax obligation by at least 5 years (during which time you enjoy the benefits of having the full amount invested for your account)
  3. You can stay as long as you want! Remaining in the fund means you keep your investment, you don’t pay the CGT and you earn dividends based on the gross (pre-tax) amount

 

Need any more convincing?

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Anuva Investments launch Section 12J hospitality fund with property partners Flyt Property Investment

Anuva Investments, South Africa’s first Section 12J company, have announced the launch of a new fund available, allowing for diversification from traditional 12J private equity into the property sector via a hospitality fund created in partnership with Cape-based property developer Flyt Property Investment.

The 12J tax incentive introduced by SARS in 2009 was intended to stimulate growth in the SMME sector and ultimately lead to job creation. Historically these investments have been limited to venture capital and, in some cases, business rescue opportunities with traditional property investments not qualifying as VCCs. Investing in a qualifying 12J company requires that the company holds assets that qualify under the Act; the only property assets that qualify are those that create jobs in the hospitality sector, for example, hotels or managed accommodation properties.

The Flyt and Anuva partnership, launched as Flyt Hospitality Fund, will issues shares in selected qualifying property developments. Two Cape Town developments have been structured into the fund which issues shares giving the holder access to all the benefits of the property.  A minimum investment of R1million is required and can be made via private investor, trust, stokvel, investment syndicate or company. The investment is locked for a period of five years without any disbursements, after which shareholders can opt to remain in the structure and depending on performance, benefit from a passive income via quarterly dividend payouts.

Speaking at the launch of the fund, Zane De Decker, Managing Director of Flyt Property Investment, said: “Part of our success has been our ability to identify a good opportunity, so when 12 J hit our radar, we immediately pursued the structure as an option for our investors.”

He also quoted impressive statistics from The Western Cape Government, confirming that for every R1million invested in 12J structures, 4.1 jobs have been created in South Africa.   “It’s important for us to achieve returns in every sense. Not only do we want to achieve attractive financial yields, but it is also essential that we uplift local businesses, improve the built environment and facilitate positive progress in the areas we work in.”

Also at the launch was Neill Hobbs, CEO and founder of Anuva Investments, who said that their investment mandate with Flyt Property Investment is to invest in quality hospitality opportunities. “Together with the team at Flyt, our strategy is to find outstanding opportunities in the property sector: good quality, strategically located properties with a focus on sectional-title serviced apartments and student accommodation. We have worked closely with Zane De Decker and are optimistic at the potential this diversification will offer our investors.”

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Cape Town’s latest property group takes off

Adding to this positive drive is Flyt Property Investment, Cape Town’s newest property development brand which was announced on 2 September 2019.

The brand originates out of an alliance between Proventus Property’s Zane De Decker and private equity investors who have valued and supported his work in the past. Speaking in Cape Town this week, De Decker confirmed their strategy of finding only meaningful opportunities that challenge the status quo. De Decker, who has made a name for himself as somewhat of a pace-setter, emphasises: “It’s important for us to achieve returns in every sense. Not only do we want to achieve attractive financial yields, but it is also essential that we uplift local businesses, improve the built environment and facilitate positive progress in the areas we work in.”

The Flyt partnership is focused on the Cape Town area, spanning residential, hospitality, industrial and commercial projects, and already have a number of successful developments notched on their belts. Their newest development, Eaton Square, situated in Diep River, consists of 66 sectional title apartments. The ‘brownfield’ development (previous development that is not currently in use) is proof of their alternative co-living model that incorporates a fully-managed ‘plug and play’ concept targeted at the younger generation. Due to launch in early 2020, Wink Apartments, a Foreshore development consisting of 30 residential units and 130sqm of retail space, will include an allotted portion of rooms available to the Airbnb-type hospitality rental market.

Pipeline developments and projects include a property in Rosebank and a mixed-use development in Buitengracht Street, Cape Town. The group has indicated that they will soon be launching a Section12J property fund aimed at interested investors.