Sold Out – property sector gets a boost, thanks to tax break

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Property sales in the first quarter of 2021 enjoyed a significant boost thanks to SARS’ Section 12J tax incentive. Demand for investment opportunities into qualifying property developments that include hotels, lodges, student residence or serviced apartments resulted in some developers selling out all units via the Section 12J structure. Qualifying section 12J investments offer individuals, trusts and companies resident in South Africa a tax rebate on investments (up to 45% for individuals), if made through an approved venture capital company.

Cape-based Flyt Property Investment reported that all units at Eaton Square in Diep River, WINK Aparthotels in the CBD precinct of The Foreshore, and Stellenbosch student accommodation development, Quivertree, sold out over 150 units via their structured fund, managed by Section 12J specialist fund managers, Anuva Investments.  Fund Manager, Ryan Flowers details that his sales team saw significant interest in their 12J structured products with a flurry of investors signing up once Finance Minister Tito Mboweni announced that the incentive would not be extended beyond the June cut-off.  “There was keen interest in our Flyt Select and Partnership funds whereby investors can take part in the 12J incentive, enjoying 100% tax deduction when investing in either a specific sectional title unit individually, or share in the ownership of a number of units along with Flyt and other investors/partners,” Flowers explains.

The popularity of the fund can largely be attributed to the 100% loan facility that has been made available to investors and taxpayers who do not have the finance upfront. A 5% deposit secured the investment; and a loan was made available for the balance to qualifying taxpayers while waiting for their SARS refund. This loan is repaid partly by the investor’s tax refund from SARS and the balance settled either in cash or with a replacement home loan.

Zane de Decker, CEO of Flyt Property Investment says that for anyone interested in property investment, there really is no better time to take advantage of this remarkable incentive. “Investors have the unique opportunity to allow SARS to put down the deposit on their property investment for them (up to 45% depending on the investor’s tax bracket). This not only aids in investors’ cashflows upfront but has huge implications on interest savings as in most cases the required home loan is significantly reduced, boosting property rental cash flows further.  For those investing cash this equates to major discount on the purchase price of the unit,” he points out.

The Section 12J scheme expires on 30 June 2021, thereby affording interested investors one last opportunity to receive the tax deduction via a qualifying investment.  The industry expects huge interest in the final period; Flyt Property Investment will soon launch 3 new projects that will be made available to investors via their Section 12J products.

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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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