Kuwait’s IFA Hotels & Resorts has announced that it has entered into a joint venture with boutique financial consulting firm Jaltech to create a R2 billion property fund.
The property fund, Zimbali Capital, is a Section 12J Venture Capital Company which will allow IFA and its associate partners to raise capital under the Section 12J scheme for both their hospitality and student housing products.
Section 12J is a relatively new income tax dispensation which may assist small and medium enterprises (SMEs) to raise capital from South African taxpayers. South African taxpayers are incentivised to invest into Zimbali Capital by receiving a return on their full investment and a tax deduction on their taxable income before the end of the 2018 tax year. This deduction results in a tax credit between 28% and 45% dependent on whether the investor(s) are individuals, companies and/or trusts.
Werner Burger, CEO of IFA Hotels & Resorts, South Africa explains:
“The attraction of investing into Zimbali Capital means that, under Section 12J, the cost of your investment is effectively reduced. For example, if during the financial year ending 28 February 2019, a taxpayer (in the highest tax bracket) has had PAYE of R450 000, and the taxpayer invests R1 million into Zimbali Capital, the taxpayer may be entitled to receive a refund from SARS of the full R450 000. This means that you have effectively only invested R550 000 into the fund. The benefit here is that you can still earn a return on the full value of your investment.”
From a macroeconomic perspective, and in the spirit in which Section 12J was created, Zimbali Capital will act as a catalyst for significant job creation, both in the construction and the tourism and hospitality sectors. The Zimbali brand has had exceptional success in the property sector and is now looking to raise capital for the first of Zimbali Lakes Resort’s hospitality projects, called Boulevard PAD. The fund for Boulevard PAD will close at R100 million. In addition to hospitality projects in Zimbali, Zimbali Capital will invest in Legend Hotel in Limpopo and De Zalze Lodge in Stellenbosch.
“Zimbali Capital will not only provide a vehicle for South African taxpayers to reduce their tax liability but also an exceptional investment opportunity through its hospitality and student housing products. Shareholders will see the benefit of their investment not only because Zimbali has proven to be a strong and desirable brand with undeniable longevity, but because of the overwhelming potential for investors to see a return on their investment earned through short and long-term rentals at Boulevard PAD. This will also give investors geographical spread through investing in the country’s 3 most prestigious mixed-use master developments – Zimbali, Legend Golf & Safari Resort, and De Zalze.”
By investing into a Venture Capital Company such as Zimbali Capital, the investor will receive an equity share and thus become a shareholder in the property. Individual and company shareholding is capped at 20%.
Jonty Sacks, Partner at Jaltech concludes:
“Zimbali Capital, unlike the majority of the hospitality-focused Venture Capital Companies, will not be sitting on funds in the hope to find an attractive investment opportunity. IFA Hotels & Resorts have an extensive pipeline of developments which they are looking to roll out in the short-term. This will give investors the reassurance that their funds are made to work within a short period of time.”