There's a buck to be made in urban renewal

Posted On Monday, 02 February 2004 02:00 Published by eProp Commercial Property News
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Many pundits are saying that the South African property market is overheated and a major downward correction is imminent

Property-Housing-ResidentialMaybe, maybe not.

One thing is for sure - it's a tall order these days to find any property at a decent price without flying in the face of the fundamental "3P" property rule: Position, Position, Position.

The bravest investors are now starting to look at property in areas where, up until recently, only slumlords took interest. Central Johannesburg is a prime example.

The idea is that urban renewal projects, coupled with a crime clean-up, will soon reinstate these areas to their former glory.

Urban renewal projects are not unique to South Africa. They are happening worldwide. We are following the global trend and they will soon be offering a tax incentive for the investor: the Section 13 Quat building allowance. The allowance is not granted in respect of the acquisition price of the property. Basically, any building improvements are eligible for a 20% write-off in the first year and a 5% allowance per year for 16 years thereafter.

A couple of health warnings: Don't buy yourself a penthouse on the top-floor of a building in central Jozi today - no allowance will be granted unless it is used by the taxpayer for his trade.

In fact, as things stand today, no one knows exactly where the urban renewal projects will be located. The legislation is pretty specific on the size and location of these areas and the local authorities are going to have to impress Finance Minister Trevor Manuel with a pile of paperwork before tax allowances can be granted. But we should start seeing some results by June.

And it is not only good old Jozi that's going to get this cherry. Provision is made for urban renewal projects throughout the country: Buffalo City, Cape Town, Ekurhuleni, Emalahleni, Emfuleni, eThekwini, Johannesburg, Mafikeng, Mangaung, Matjhabeng, Mbombela, M sunduzi, Nelson Mandela, Polokwane, Sol Plaatjie and Tshwane.

Everyone is asking, is it worth it? I have two questions and they don't pertain to the tax allowance.

First, the concept allows investors to structure a deal whereby taxes are deferred while the loan finance is repaid. That's always great, so long as the financial institutions provide the finance. Will lenders want to participate or try to blackball the process? We can but hope the former.

Second, no price, no value and no tax allowance is worth living somewhere unsafe. But there have been huge strides made in terms of regeneration and there is reason to hope other s can be reclaimed.

Personally, if I had the money and the time (I don't) to fully assess this opportunity, I would be excited.

I am willing to bet there are going to be some who get this right and make much more than they would in "3P" property.

  • Lester is professor of taxation studies at Rhodes University
Last modified on Friday, 16 May 2014 10:52

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