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One Thibault: investing in Cape Town’s skyline with a 100% tax break

The pandemic has accelerated unusual trends like the work-from-home movement and with corporate businesses downscaling on large workspaces, the office sector has been hit the hardest.

According to SAPOA’s Office Vacancy Survey for 2021’s first quarter, South Africa’s office vacancy rate increased to 14.2%, translating to more than 500 000m2 of office space left vacant since March 2020 and landlords were left scrambling during the highest office vacancy levels recorded over the past sixteen years.

With office development activity at an all-time low and an oversupply of office space in the cities, a shift in local property market fundamentals has brought forward the prevalence of office-to-residential conversions and in preparation for the future of city living, co-working, and socialising in a post-pandemic world, one such innovative conversion includes the reimagination of Cape Town’s iconic building, One Thibault.

The second office-to-residential conversion for owners, Thibault Investments, the landmark is being redeveloped into a mixed-use building featuring existing commercial space on floors 1 – 14 and 180 fully serviced bespoke studios and apartments between floors 15 – 21.

It is the adage of location, location, location,” says Steven Herring, Director of Thibault Investments.

One Thibault is exceptionally well located on the periphery of Cape Town’s CBD and within proximity to the V&A Waterfront and the Atlantic Seaboard. With our first successful office-to-residential conversion, The Heriot, which is across the square from One Thibault, we realized that there is a strong market in the area for good quality, residential apartments at affordable prices”.

A new lease on life for a modernist masterpiece

Designed by Revel Fox & Partners in the 1960s, the award-winning building originally housed BP as its anchor tenant. Unlike any conventional skyscraper, the design was unique for its time and the building was cleverly orientated approximately 45 degrees to the city’s grid, allowing for greater control of exposure to light and heat with each façade subtly modified to maximize shading from the precast panels on the face of the building.

The building is a masterpiece and deserving of its heritage importance and it is surprisingly suitable for an office-to-residential conversion” comments Imraan Ho-Yee from Vivid Architects who partnered with Thibault Investments to reimagine Cape Town’s tallest residential development.

From the outset, Vivid Architects knew the importance of the building in Cape Town’s city landscape, and we avoided any external changes to the tower façade. The building’s colour, texture, and windows were not altered, and the redevelopment is entirely within its existing envelope. These architectural elements are so authentic to the original design that they warrant preservation”.

One of the biggest advantages to this conversion is the building’s anatomy; it boasts column-free floor space which is supported by eight external large columns and a central concrete core allowing for easy subdivision of the floors based on space requirements.

The floor to ceiling windows on the corners of the building are amazing, providing spectacular views to the planned corner apartments” notes Imraan. “Every apartment has magnificent views that just get better the higher up you go”.

Piloting the future for Cape Town’s rental market

While One Thibault factors in affordability of purchase price, it also speaks to investors who have – up until now – been alienated by Cape Town’s pricing over the past few years: a sub-million-rand market that has not existed in the city centre. 

The concept behind these 19m2 – 60m2 luxury apartments is to provide investors the chance to reside in the city centre with efficient space of a high standard coupled with contemporary designed fittings. 

In our experience, people want their own space and size is secondary,” says Steven. “Investors are also very price-sensitive, and they can afford their own space to a certain degree – as a property developer, you have to find this balance”. 

Jonathan Fell from Lew Geffen Sotheby’s International Atlantic Seaboard and City Bowl says One Thibault investors have an opportunity that has not existed in Cape Town before. 

Cape Town is an exclusive property market, and it is hard to enter. In comparison to the rest of South Africa, the city centre rental market is quite high due to its international tourism status.

For investors in One Thibault, their futures look incredibly bright,” says Jonathan. “You are investing in real estate starting from R895 000 while competing against neighbouring properties that sold for between R2 to R5 million”. 

From the beginning of this project, it was clear that strong demand for affordable accommodation resonates throughout Cape Town’s city centre and One Thibault speaks to this demand by providing investors with the freedom of space and the privacy needed to work from home with co-working facilities, a rooftop pool, laundry facilities and a concierge included.  

We have engaged with how we can create this space by providing investors with elements they would not necessarily have access to in other buildings,” says Jonathan. “From this perspective, we can affordably rent these apartments out at R6 000 per month – less than what you would pay in the rest of the city – while still getting an 8 – 9% yield on your investment”.

“Thibault Investments have come to market with a competitive product and price which will force other property developers to produce more affordable offerings, ultimately driving the city centre market to be more comfortableIn the long-term, One Thibault will create a happy market within Cape Town’s CBD”.  

Investing in a piece of history

Low-risk and well-priced for the centre of Cape Town, Zane de Decker, CEO of Flyt Property Investment says investors can expect a good rental yield and inflationary capital growth.

One Thibault’s 180 serviced apartments qualify as a Section 12J investment, an incentive offered by SARS to stimulate investment into businesses to create jobs and to grow the economy.

Section 12J is a 100% tax deduction that forms part of the Income Tax Act, allowing investors to write off 100% of their One Thibault investment amount for tax purposes through the Flyt Select Fund, a division of Anuva Investments.

While this is Flyt Property Investment’s third capital raise, all their products have fallen in the sub-R2.5 million brackets and most of their investors earn between R800 000 to R1.5 million per year.

Traditionally, 12J funds were targeted at high net-worth individuals because there was no investment cap. A year ago, the government changed the legislation to appeal to a wider audience with the opportunity for individuals to invest up to R2.5 million” says Zane.

Now, investors can use this opportunity to receive a higher tax deduction than what they have the capital for.

As part of the Section 12J legislation, One Thibault investors must hold their shares in the rental pool as a five-year commitment. They cannot reside in the units which need to form part of the short to medium-term hospitality offering managed by Wink Aparthotels.

This appeals to investors because they want a variety of solutions,” says Zane. “However, if you invest via Section 12J, you cannot expect to receive a tax deduction and to reside in your unit in One Thibault. You need to choose which investment route you want to go down”. 

As an individual earning a salary, a Section 12J fund is the only way to receive every cent of your tax back says Zane. “Investors can get every cent of their PAYE refunded to them next year if they invest in One Thibault – this is a strong statement to make”.  

With sales through Section 12J ending on the 30th of June 2021, the incentive’s deadline, Thibault Investments expect to complete One Thibault’s conversion – and for tenants to take occupation – during the second half of 2022.

We are long-term owners as opposed to other property developers that generally develop and sell. We are not developing to exit. We are here to stay” concludes Steven.