With certain income tax allowances providing significant tax relief to investors in the buy-to-let market who have five units or more, and the banks now being slightly more lenient in granting bonds, says Lanice Steward, managing director of Knight Frank Residential SA.
There have been additions made to Section 13 of the Income Tax Act which allow the taxpayer to claim an annual allowance of 5% of the cost of a new home over 20 years, until the full cost of the asset has been written off.
The qualifying criteria is not that onerous, says Steward: the property must have been bought on or after 21 October 2008; the property must have been bought specifically to rent out; the taxpayer must own at least five units in South Africa and the cost of the unit must not be a tax deduction in any other way.
TPN reports and the agents feedback in Cape Town at present, shows that the demand from tenants is there in certain brackets, said Steward. With people in the R3 000 to R7 000 and R7 000 to R12 000 rental bracket being such good payers (the last report shows that ±86% of these tenants were in good standing), and now this tax incentive, it makes sense to invest in smaller units that will give a good return such as one or two bedroom units that cost around R1 million to R 1,5 million, which will achieve rentals of around R 7 000 to R 9 500 depending on the area.