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Tax write-offs for buy-to-let market

Affordable and quality residential rental units for middle income South Africans can become more accessible if investors capitalise on the tax write-offs for buy-to-let investing in Section 13sex of the Income Tax Act.

The tax write-offs obtainable through Section 13sex come into effect when property investors buy a minimum of five residential units for rental. Purchasers are then able to off-set their investment by depreciating the cost of the units at an accelerated rate of 5% a year over 20 years.

Cape Town based Property Investment company – IGrow Wealth Investment’s aim is to alert residential property buyers to the little-known tax incentives introduced by Section 13sex.

Ever since the South African Revenue Service (SARS) introduced its Section 13sex residential building allowance in 2008, Jacques Fouche has been working on putting together a product offering that would allow an investor to take maximum advantage of the tax write-off opportunities therein.

Our value-added offering means the investor does not have to personally deal with all the inevitable legal, financial and property-based legwork, because they handle all that, he says.

SARS created the Section 13sex legislation specifically to incentivise the investor market to encourage developers to build buy-to-let properties aimed at providing much needed housing for people in the middle income market, most of whom cannot afford to buy their own homes.

The tax write-offs obtainable through Section 13sex come into effect when property investors buy a minimum of five residential units for rental. Purchasers are then able to off-set their investment by depreciating the cost of the units at an accelerated rate of 5% a year over 20 years.

Furthermore, the allowance is not prorated, so a property purchased on the last day of the tax year still qualifies for the full five percent depreciation.

IGrow Wealth Investments in-house team of experts  with a dedicated team of lawyers, accountants and property investment consultants that specialize in Property Tax aim to maximise Section 13sex tax advantages for their buyers.

The tax incentive was introduced to help mitigate the impact of the 2008 global economic recession and actively support the buy-to-let sector of the residential property market.

“As the economic crisis deepened, banks throughout South Africa tightened their lending criteria and made it increasingly difficult to buy property.”

Consider a buyer with a gross monthly income of R120 000 who invests in five units at a total cost of R2.9 million. With a 90% mortgage, the initial deposit amounts to R285 000.

Without Section 13sex, the monthly cost for these five units would be R7 800. However, Robertson says the accelerated depreciation allowance brings down the buyer’s tax bill to R6 300 a month, making the effective cost R1 500 a month. That’s a significant saving of over 80%.

It is important that South African property investors help address the significant need for affordable and quality rental properties. In doing so, they believe they are contributing positively to nation-building.

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