Presenter: Lindsay Williams Guest(s): Anthony Diepenbroek

The South African Revenue Service (SARS) implements a flat rate of stamp duty - now making waves in the property industry by effectively doubling the duty paid on property leases up to five years. With Anthony Diepenbroek from the South African Property Owners Association (SAPOA)

LINDSAY WILLIAMS: Anthony is also a director at Pangbourne Property. Anthony, thanks for dropping in - what does this actually mean, this new SARS ruling?

ANTHONY DIEPENBROEK: Well, we were approached in June last year to discuss amendments to what SARS classified as an "inefficient form of taxation, with a whole lot of ambiguities in it." So we willingly participated in the process of trying to sort out something - so that it was clear, and tax could be collected.

LINDSAY WILLIAMS: And this was in June of 2004?

ANTHONY DIEPENBROEK: 2004.

LINDSAY WILLIAMS: What’s happened since then?

ANTHONY DIEPENBROEK: Well, if you take into account why SARS approached SAPOA... members, as an association, represent probably about R40-billion worth of listed and institutional property, and certainly they were able to provide the input. We were promised at that stage that there would be a workshop - they would provide guidelines - and effectively we did comment on it. Nothing was discussed on a quantitative basis, and I think, almost, it appears an arbitrary flat rate of 50 cents was put in place, and that certainly has resulted in effectively 100% increase in what they termed an "inefficient form of taxation".

LINDSAY WILLIAMS: So that’s gone from 25 cents per R100 up to 50 cents per R100?

ANTHONY DIEPENBROEK: It’s not quite as simple as that. The effect is, if you take into account that there was a stepped rate before, that now they’ve adopted a flat rate - the majority of leases, both in residential and commercial property, are between three and five years - it effectively amounts to a 100% increase in tax.

LINDSAY WILLIAMS: As a layman, it seems to me then that SARS is profiteering from a particularly buoyant sector of the South African economy - is that your view?

ANTHONY DIEPENBROEK: I would say that is our view - but I’m not sure that is the intention of SARS. I think that it was in fact a somewhat arbitrary approach to get input into it - they want to collect the tax. I don’t think it was ever their intention to double the tax. I think by taking a flat rate - and not paying attention statistically to what that rate was going to do to the collection of tax - I would actually say that it was inadvertent. I can’t attribute maliciousness to it.

LINDSAY WILLIAMS: SAPOA chief executive Brian Kirchman said yesterday that he was disappointed at the move - as the body had expected to consult with SARS, and raise concerns before the changes were implemented. Have they effectively gone in without consulting - and there’s no chance of any redress on the matter?

ANTHONY DIEPENBROEK: I would hope that there is a chance of redress on the matter. They did consult with us - but they promised to workshop it through with us, and when I understand the word "workshop" that means that we actually look at the financial impacts of it, and that we actually look at the exact implication of it. That, certainly, was not done.

LINDSAY WILLIAMS: Talking about the implications - I don’t know if you’ve got figures on how much this would mean extra into SARS coffers? What does it actually mean for the commercial property industry?

ANTHONY DIEPENBROEK: Well, if you take into account that one of the reasons why the ambiguity existed was related to turnover clauses on retail leases - that is going to have a significant impact. I can’t quantify it in rand terms. Certainly, if you look at residential leases - 100% is going to be a significant impact. As to the quantum of what’s going to go into the SARS coffers - I can’t comment.

LINDSAY WILLIAMS: The industry in general - is it going cool off because of this type of increased charge?

ANTHONY DIEPENBROEK: No. I don’t think that it’s going to cool off. If you take into account that in commercial property - a lot of that is passed onto the tenant. From that point of view - when you look at the tenant faced with an additional burden, you talk about increased rates, you suddenly talk about another form of taxation - then it’s an additional burden which our tenants have to carry.

LINDSAY WILLIAMS: Then they pass that on to consumers, and then that becomes inflationary, potentially - so it is part of the inflation cycle.

ANTHONY DIEPENBROEK: Exactly.

LINDSAY WILLIAMS: Talking about the commercial sector in general - how is it looking? Are you still finding buoyant conditions?

ANTHONY DIEPENBROEK: Long may they last, I think, is our attitude! Really, we’ve gone through a long slow cycle - where there was over-development of offices. I think generally there’s a very buoyant view that listed property is still going to continue for the foreseeable future having its good run. It’s part of the inflation rate environment, the interest rate environment - and, generally, a buoyant economy.

LINDSAY WILLIAMS: Of the three - commercial office, industrial, retail - which has the best prospects for 2005, would you say?

ANTHONY DIEPENBROEK: I suppose if you follow a contrarian philosophy - you’d say that offices have been over-developed for such a long time they have got to have a turn-around. Retail - it’s a changing retail mix, generally, and I’d say that retail is going to remain buoyant. Then there’s been a resurgence of new industrial areas, and certainly industrial is also coming to the fore very nicely.

LINDSAY WILLIAMS: Pangbourne - how are you doing?

ANTHONY DIEPENBROEK: We’re doing exceptionally well. We’re largely an industrial portfolio, and we’re certainly seeing increases in rental, we’re seeing occupancies that are hovering at 97% to 98% - so we’re actually quite happy with what we’re doing, as well.