Advice and Opinion Section 12J

Property sector gets boost thanks to tax break

Stellenbosch student accommodation development, Quivertree
Stellenbosch student accommodation development, Quivertree.

2021’s first quarter saw property sales enjoying a significant boost thanks to SARS’ Section 12J tax incentive.

The demand for investment opportunities into qualifying property developments that include hotels, lodges, student residence, or serviced apartments, resulted in some property developers selling out all units via the Section 12J structure.

Qualifying Section 12J investments offer individuals, trusts, or companies’ resident in South Africa a tax rebate on investments (up to 45% for individuals) if made through an approved venture capital company.  

Flyt Property Investment reports that all units at Eaton Square in Diep River, Cape Town, 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, says his sales team saw significant interest in their 12J structured products with a flurry of investors signing up since Finance Minister Tito Mboweni’s announcement that the incentive would not be extended beyond the June 2021 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 be largely 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 secures 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.

For anyone interested in property investment, there really is no better time to take advantage of this incentive says Zane de Decker, CEO of Flyt Property Investment: “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”.

The Section 12J scheme expires on the 30th of June 2021, affording interested investors one last opportunity to receive the tax deduction via a qualifying investment.  The industry expects huge interest in the final period.