Budget a tonic for the property sector.

Listed Property, REIT, Real Estate Funds

Posted On Monday, 03 March 2003 02:00 Published by eProperty News

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Incentives for the rejuvenation of buildings in South African central
business districts are among several concessions contained in the
Budget announced by Finance Minister Trevor Manuel that are likely to
benefit the property sector .
Jonathan Smith, of Courtwell Consulting, and Marc Schneider, of
E-prop Research: Sapoa Online, gave The Star their views on the
Budget's implications for C&I Property.
Smith commented: "The most significant tax benefit is the 20%
depreciation allowance over five years granted to property owners in
certain nodes who rejuvenate their buildings.
"The cost of new buildings developed in such nodes may in future be
deducted over 17 years - effectively granting investors an improved
equity return. As these benefits are intended to last only four
years, applicable nodes will acquire some additional investment
attraction, provided the risk associated with some of them can be
reduced.
"The reduction in retirement fund taxation from 25% to 18% could
marginally stimulate interest by retirement funds in the property
sector.
"The healthy allocation towards infrastructure - R20-billion, rising
to R24-billion in the medium term - will continue to benefit the
construction sector and, indirectly, the property sector.
"Many property-services companies fall within the Finance Ministry's
definition of a small business with a turnover lower than R5-million.
These businesses received a lower tax rate.
"The strengthening rand also bodes well for the attraction of foreign
investment in property," Smith added.
Schneider also felt that the most positive Budget benefit was the
allocation of R1,3-
billion towards investment in real estate in CBDs and designated urban
zones.
"As a means of enhancing and promoting new and existing investments
over the next four years, a direct tax depreciation allowance of 20%
for refurbishments, as well as a 20% write-off allowance for new
developments for the first year - 5% per annum for a further 16 years
- will be permitted.
"The criteria should apply to areas with a high population-carrying
capacity; CBDs or inner-city environments; and areas with developed
urban transport infrastructure for trains, buses or taxis.
"Further easing of the tax burden on low- and middle-
income households will be welcomed by the retail sector in general.
"On the individual tax front, an increase in interest and dividend
income exemption from R6 000 to R10 000 for ordinary taxpayers and
from R10 000 to R15 000 for taxpayers over 65 should spur renewed
interest in listed property share investment.
"Good news also is that the average transfer duty on property with a
value of R200 000 is set to fall from 2,5% to 1,5%; and the duty on
property with a value of R400 000 will drop from 4,5% to 3,9%.
"Given further exchange control flexibility, rand stability, positive
country ratings, and good macro-economic conditions and prospects,
the opportunity exists for both local and foreign investors to make
sound medium- to long-term property investments," Schneider added.

Publisher: The Star
Source: The Star

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