Does investing in property in South Africa make sense right now?

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Moving into Level 1 of lockdown we have started to see signs of what appears to be normality returning as we collectively breathe a sigh of relief (without steaming up our sunglasses). But can we – or should we – remain twice-shy with the bite of COVID-19 still fresh in our minds, albeit 180-odd days in?  Have we become more risk-averse, and should we be?  What has this pandemic meant for property purchasing decisions and is there still money to be made from investing in property?

The mood in the property market seems pretty upbeat lately – five rate cuts within the space of seven months have taken the prime lending rate to a 50-year low of 7%, making purchasing a home much more accessible and achievable.  For example, on a bond of R1 500 000 (at prime on a 20-year term) the repayment amount will have dropped from  R14 475 at the beginning of the year to R11 629 after the recent rate cut.

Estate agencies are achieving record sales months, bond originators report that home loan applications are up close to 60% year-on-year, and banks are regularly (or at least half of the time, according to Ooba) giving up to 100% bonds.   There also seem to be more vacancies than usual, definite pressure on rentals and a lot of people are selling.

So this raises the question – should we be fearful or greedy – is it a good time to invest in property?  Ryan Flowers, Fund Manager at Flyt Property Investment, says it’s definitely a buyer’s market and that with interest rates at a record low, you can expect borrowing to increase, which will reflect in increased buying activity in the market.

“Coupled with the abundance of well-priced stock, some incredible tax-saving property investment opportunities using SARS’ Section 12J incentive,  and the willingness of banks to lend to the consumer, these factors mean that buyers are certainly in the driver’s seat and can cherry-pick the dream home that may have been out of reach until now,”  he explains.  These conditions have already impacted property prices by as much as 2%, and should, at least in the short-term, continue to increase, as we have seen already seen on FNB’s House Price Index.

Although it is difficult to predict what the longer-term impact of the pandemic will be and whether we will see a muted recovery in house prices, what is clear is that the current market conditions do not come around every day.  For investors who have a stable income and/or reliable, paying tenants, can afford to borrow from the banks and, more importantly, do not rush their investment decisions – it is certainly worth considering.

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WHAT IS SECTION 12

Section 12J of the Income Tax Act – the most efficient tax saving tool, provided by SARS and government that allows you to hold on to your tax cash while investing it wisely.

The section specifically aims to help the growth of small and medium sized businesses by increasing their access to equity finance. To attract investors into this typically under-funded sector, which is imperative for driving economic growth, SARS has written Section 12J into the Tax Act, which offers taxpayers a 100% tax deduction in the year of investment if they invest in SMMEs by way of subscription of shares in a Section 12J Venture Capital Company.

Flyt’s Section 12J compliant property developments give investors the full 12J tax deduction, allowing them to put this saving/refund towards their property purchase. This means that SARS will effectively fund up to 45% of the purchase price of the property.

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