Visual International’s mixed-use suburb development, Stellendale Village, in Kuils River outside Cape Town
Affordable and quality residential rental units for middle-income buyers are now more accessible thanks to property developer, Visual International Holdings, looking to capitalise on the tax write-offs for buy-to-let investors in Section 13sex of the Income Tax Act.
“Our aim is to alert residential property buyers to the little-known tax incentives introduced by Section 13sex,” says Charles Robertson CEO of Visual, which listed on the JSE’s AltX last year.
“Ever since the SA Revenue Service (SARS) introduced its Section 13sex residential building allowance in 2008, Visual has been working on putting together a product offering which would allow an investor to take maximum advantage of the tax write-off opportunities therein. Visual’s value-added offering means the investor does not have to personally deal with all the inevitable legal, financial and property-based leg work, because we handle all that,” he adds.
“SARS created the Section 13sex legislation specifically to incentivise the investor market to encourage developers to build buy-to-let properties aimed at providing much needed housing for people in the middle income market – most of whom cannot afford to buy their own homes,” explains Robertson.
The tax write-offs obtainable through Section 13sex come into effect when property investors buy a minimum of five residential units for rental. Purchasers are then able to off-set their investment by depreciating the cost of the units at an accelerated rate of 5% a year over 20 years.
Furthermore, the allowance is not prorated so a property purchase on the last day of the tax year still qualifies for the full 5% depreciation.
“At our developments, we work with a dedicated team of lawyers, accountants and real estate agents to maximise Section 13sex tax advantages for our buyers,” says Robertson.
The tax incentive was introduced to help mitigate the impact of the 2008 world-wide economic recession – and actively support the buy-to-let sector of the residential property market.
“As the economic crisis deepened, banks throughout SA tightened their lending criteria and made it increasingly difficult to purchase property,” he explains.
“We saw Section 13sex as a lifeline for middle-income purchasers.”
Sales at Visual’s Stellendale Village development in Kuils River outside of Cape Town are a case in point.
Consider a buyer with a gross monthly income of R120,000 who invests in five units at a total cost of R2,9 million. With a 90% mortgage, the initial deposit amounts to R285,000.
Without Section 13sex, the monthly cost for these five units would be R7,800.
“However, the accelerated depreciation allowance brings down the buyer’s tax bill to R6,300 a month making the effective cost R1,500 a month,” says Robertson.
That’s a significant saving of over 80%.
For Robertson, it is important that both Visual and the property buyers themselves are helping to address the significant need for affordable and quality rental properties.
“And in doing so, we believe we are contributing positively to nation-building.”