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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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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.”