The decision to invest in residential property can be an extremely taxing (excuse the pun) one or a very profitable one. This depends on many factors that we are not going to explore in full here today, but we are going to share some very interesting facts with you about this exciting possibility.
When investing in real estate one cannot act on impulse, but investment decisions should be taken with much circumspection. Draw up your very own investment plan that covers all the possible aspects pertaining to such a plan including things like:
An interesting tax break that SARS is currently offering is where you purchase or own at least 5 properties. As an incentive for buy-to-let property investors in the private sector to provide much needed housing to the middle-income market in the form of rental units, SARS allows a significant tax benefit on new residential properties bought and let.
The incentive allows the buy-to-let investor (the tax payer, be it an individual or an entity) to 'write-off' from 30% to 100% of the purchase cost of new properties or improvements of residences, against his/her annual income tax liability.
Here are some easy pointers to help you on your way...
1. Qualifying criteria:
2. What percentage of the cost can you write off as depreciation? On new units purchased, you can write off 55% if the units are sectional title, 75% on average if plot and plan or freestanding homes (because you can write off 0% on the land and 100% on the top structure) and 100% if semi-detached. On existing new properties, 30% of the cost of any necessary improvements to the building (so that it can be let out) can be written off.
3. Over which term is the write off allowed? The total permitted depreciation is deductible against the owner or tax payer's income tax liability at a rate of 5% per annum over 20 years. An even greater depreciation of 10% per annum is permitted in the case of low-cost housing, which is defined by the Act as a stand-alone unit to the value of up to R300 000 or an apartment to the value of up to R350 000.
Should you own less than five such properties, you would only be entitled to claim the allowance in the first year that all you own five rental properties. If you own more than five such properties, you are entitled to receive the allowance on all those properties as there is no upper limit to the quantity of units allowed.
The allowance is not apportioned for part of a year either, so even if the units are acquired and let on the last day of a tax year, the full allowance may be claimed as a deduction in that year!
With some exciting new developments being planned all over South Africa, please keep this in mind as well as the fact that there is currently a shortage of rental apartments in the more affordable market.
"Buy-to-let' may very well become a reality for you...soon...
Pam Snyman CPRE (NQF Level 7)
(MPhil, Dip Advanced Property Practice, Dip Property Investment & Valuation)