Capital allowances are a valuable financial savings tool as they are inherent in most property transactions or property developments, and are a key tax benefit within a company’s real estate or project expenditure.
Recognising the availability and potential value of capital allowances within capital expenditure planning can significantly affect the complexion of real estate or project decisions. By way of an example, implementing capital allowances systems may improve the post tax investment yields, make marginal schemes viable or influence the design specification of a new build project.
Capital allowances are the means of giving significant tax relief for capital expenditure incurred on certain types of commercial property assets. Taxpayers can offset their eligible capital allowances against their taxable profits, thereby reducing the amount of tax that they have to pay.
Taxpayers who are in a tax loss position may still claim capital allowances, which will effectively increase their tax losses. At such time as the taxpayer returns to a tax paying position, he may then use these increased tax losses to offset against taxable profits.
The increased tax losses could also be used to shield against possible capital gains tax when the relevant assets are disposed (this tax planning technique is outside the scope of this article).
The legislation dealing with capital allowances is a crucial part of the South African tax system, and is directly relevant to the whole range of businesses operating in South Africa, from the largest company to the smallest business consisting of perhaps a rented apartment. There are significant amounts of money are at stake.
The capital allowances rules can be complex. For example, there are relatively few tax topics that have generated more tax case law. The legal arguments have stretched over many decades and have not shown any signs of coming to an end.
The South African Revenue Service (“SARS”) has tried hard to assist taxpayers by way of their interpretation notes, most notably their Interpretation Note No.47 (issue 2). However, a practical problem with this is that a simple list of assets is potentially misleading and also somewhat unhelpful. To illustrate this point, electronic building management systems may qualify for plant and machinery allowances (by way of falling within the definition of plant for tax purposes), but these do not appear on SARS’ relevant list.
As a contrasting example, carports appear to qualify by way of appearing on SARS’ list, however, its qualifying status for tax purposes actually depends on how it is attached to the ground (no mention of this in the Interpretation Note). For example, if it is simply bolted to the ground then it will qualify for plant and machinery allowances. However, if it is cast within a concrete foundation then it may be considered to be a structure or works of a permanent nature for tax purposes, and therefore, not be eligible for plant and machinery allowances.
Therefore, it is vital for taxpayers to claim their capital allowances correctly. Doing so will enable taxpayers to optimise their claims and to mitigate making errors which could jeopardise their whole tax return.
Different types of expenditure will attract different types of capital allowances, which attract different rates of tax relief. Some of the more common forms of capital allowances include plant and machinery allowances (also known as wear and tear allowances), commercial building allowances, manufacturing assets allowances and manufacturing building allowances.
There are a variety of methods available to taxpayers to correctly identify and claim the allowances that they are entitled to. These could include detailed reports for each of the property transactions or projects involved, to the development of asset coding systems and manuals either by in-house or external consultants. The final approach will depend on the circumstances of the taxpayer, the nature of the expenditure, the amount of allowances and the tax risks involved. In addition, the chosen approach must be sufficiently detailed and robust to meet the taxpayers’ disclosure requirements under self assessment and withstand SARS’ scrutiny.
Source: Capital Allowances Specialists / Eprop
For Offices for sale in South Africa and Africa www.willemtait.com
The Economy and the Great Office Space Reboot
As we wind down 2012, there are no shortages of forecasts and predictions of how the commercial real estate and the national office space market will perform in 2013. Many are predicting that the office market will continue to improve in 2013 despite the fact that economic expansion is somewhat anemic. I am probably not as equally bullish as many as the forecasts I have observed, not that I expect the office market to retreat, but I expect companies to continue to take a wait and see attitude about the economy before adding jobs at least in the first two quarters of 2013.
Earlier this week, I came across an article which discussed how many companies have managed to exceed earnings expectations for the third quarter despite the decelerating economic expansion. The crux of the article is that most companies exceeded profitability expectations not through better than expected sales, but by squeezing expenses, primarily salaries to improve their bottom line. The reality of today’s labor market allows corporate America this opportunity.
We have all heard many times from commercial real estate brokers that real estate is a company’s second or third largest expenditure behind labor costs. There is no debate that companies have paid closer attention to their real estate costs, during the recession as a matter of survival and going forward as an avenue to enhance profitability and productivity.
Those of us in the commercial real estate industry have read often and in some cases written about the impact of technology, changing demographics in the workplace and a host of other factors are having on office space in the enterprise. Some forward thinking companies are out in front in looking at and implementing innovative new office space strategies. However, I believe for a significant proportion of companies there has been more discussion than implementation and when it comes to controlling office space costs they have done primarily two things:
1. Disposed of excess space
2. Leveraged market conditions to secure favorable rents and concessions on the lease side and seized the opportunity of a favorable cost of capital structure on the ownership side.
The Great Office Space Reboot
I walk around my office everyday and notice how increasingly unoccupied designated workspace is by my colleagues and it is not because we are not working hard, we are having a fantastic year. There is no question that we are using office space differently than we did 2-3 years ago. Also, when I think about my clients and the leases I have completed over the past couple of years only a handful have taken a look at new office designs as most have focused on taking advantage of market conditions. Some have expanded and some have rightsized, space allocations are down slightly and more collaborative space and amenities are popping up in the workspace. However, opting for taking a more serious look at more radical changes with office space designs just has not occurred.
Some day, hopefully sooner than later the labor market will improve and salaries will rise, resulting in a more intense focus on the new realities of office space. When is the only question that remains to be answered. When squeezing labor costs is no longer an option, the great office space reboot will begin in earnest.
Stay in contact with Willem Tait at www.willemtait.com or www.willemtait.co.za
THE “HUUR GAAT VOOR KOOP” PRINCIPLE STILL APPLIES IN SOUTH AFRICAN LAW – BUT THERE CAN BE EXCEPTIONS
The “huur gaat voor koop” principle ensures that any contract with a tenant, whose lease has not yet expired must be honoured if and when the property is sold.
This applies whether or not there is a bond on the property and whether or not the purchaser knew of the lease when he signed the deed of sale. Even if a lease is signed after the conclusion of the sale, this, in most lawyers' opinions, still has to be honoured.
It often happens that when a property is sold in execution, it will still have significant outstanding payments owing. It is accepted in these situations, says Wayne Albutt, National Manager for Rawson Rentals, that the bank has first claim on the sale money but, again, the lease has to remain in place. If, however, the sum raised by the sale or by an auction in execution is too small to cover the amount owing to the bank, the lease in South African law can then become invalid and the property can be resold or re-auctioned. Without the lease, it will probably achieve a higher price.
Albutt said that it does frequently happen that property, on which the sum owing to the bond issuer is not realised, are sold and in these situations the tenant has to be 'sacrificed' to ensure that the bank is better compensated. The new owner of the property may well then be faced with the challenge of evicting the tenant, who, if he has had his lease cancelled against his will, may dig in and resist this for some time. Alternatively, the new owner can, of course, draw up a new lease with the tenant.
There are always many detailed factors which can dictate the ongoing validity of a lease if a property is sold in execution. The most important point to note, however, is that there are exceptions of the kind I have described and the phrase "huur gaat voor koop" should therefore not always be relied upon," says Albutt.
This applies whether or not there is a bond on the property and whether or not the purchaser knew of the lease when he signed the deed of sale. Even if a lease is signed after the conclusion of the sale, this, in most lawyers' opinions, still has to be honoured.
It often happens that when a property is sold in execution, it will still have significant outstanding payments owing. It is accepted in these situations, says Wayne Albutt, National Manager for Rawson Rentals, that the bank has first claim on the sale money but, again, the lease has to remain in place. If, however, the sum raised by the sale or by an auction in execution is too small to cover the amount owing to the bank, the lease in South African law can then become invalid and the property can be resold or re-auctioned. Without the lease, it will probably achieve a higher price.
Albutt said that it does frequently happen that property, on which the sum owing to the bond issuer is not realised, are sold and in these situations the tenant has to be 'sacrificed' to ensure that the bank is better compensated. The new owner of the property may well then be faced with the challenge of evicting the tenant, who, if he has had his lease cancelled against his will, may dig in and resist this for some time. Alternatively, the new owner can, of course, draw up a new lease with the tenant.
There are always many detailed factors which can dictate the ongoing validity of a lease if a property is sold in execution. The most important point to note, however, is that there are exceptions of the kind I have described and the phrase "huur gaat voor koop" should therefore not always be relied upon," says Albutt.
Capco property investors richly rewarded
Johannesburg - South African investors in British property company Capital & Counties (Capco) who held on when it was unbundled from the former Liberty International in May 2010 have been richly rewarded.
Property analysts are confident that continued unlocking of value in the group’s prime properties in central London with be to their further benefit.
Shareholding in Capco by South African investors, including the Gordon family, is currently at 22%. The rand share price of this company, which is listed both in London and on the JSE, last week reached an all-time high of R31.58, from R14.35 on May 10 2010.
That's a 120% increase. “In the year to date the rand-hedge element of Capco has produced an additional yield of between 10% and 15% for South African investors compared with returns in pounds,” said Coronation property portfolio manager Anton de Goede.
He attributes this to the value so far unlocked in the company’s Covent Garden properties and progress with planning approvals for the Seagrave Road and Earls Court development sites. “London is increasingly regarded as a safe haven and Capco is benefiting from this,” said De Goede.
Capco chief executive Ian Hawksworth says the biggest value unlocking is in the 28.5ha-odd land that the company owns in Earls Court in the heart of London. This land was bought for £15m/ha and is currently worth £22.5m/ha. He said when all the planning approvals have been obtained its value will probably double.
The company spent £30m on the master plan for the development, which includes 808 dwelling units on the Seagrave Road site and almost 7 000 residential units in four “villages” on the Earls Court site. The Seagrave development will be approached in a 50/50 enterprise with entities of Hong Kong’s Kwok family.
Hawksworth says it's a unique development opportunity because the site adjoins some of London’s most luxurious residential addresses, including Chelsea, Kensington and Fulham. There is also a 300 000 waiting list for ordinary accommodation in London, which reflects the structural undersupply of all categories of accommodation in the British capital. “Last year fewer new houses were built in London than there were in 1920.” He said this makes the city’s residential market the place to be.
These developments will lead to 12 000 permanent jobs.
Capco is on its way to convert Covent Garden, which attracts more than 43m visitors a year, into one of London’s most prestigious shopping areas with unique retailers of luxury goods.
Hawksworth said that since the unbundling more than 50 new brands have been brought to Covent Garden and they are prepared to pay a premium for space there. Over the year to date retailers’ turnovers have doubled.
The newest shops are Chanel’s only free-standing beauty store in Britain and 7 For All Mankind.
He expects significant growth in market rentals in the area, which are still far below average market rentals for central London. Capco’s target is to push this up to £50m by the end of next year. At the end of June it was £47.1m and in 2009 £33.2m.
Hawksworth said the properties in Covent Garden comprise 52% of Capo’s assets and there are plans to expand them further.
The company recently placed 68.4m new ordinary shares, netting it £149.1m. This, with an additional £50m in cash, will be invested in property assets in the area.
De Goede said London’s status as a safe haven is not entirely risk-free. “The capital that has flowed into the city in recent times could flow out again when the global economy recovers.” This could put the residential market under pressure and impact the execution of the Earls Court plan, he said.
Fat Cat Property mogul stumbles in R4.6bn syndication rescue
Nic Georgiou fails to transfer buildings worth billions.
JOHANNESBURG - A plan by apparent property billionaire Nic Georgiou to repay R4.6bn to about 18 000 investors has got off to an inauspicious start. Nine months into the plan, Georgiou has failed to transfer properties worth billions of rand to provide security to investors.
The rescue plan is for eight syndication schemes sold by Pickvest (formerly PIC Syndications). These syndication companies were placed under business rescue late last year. Investors accepted a proposal by Georgiou to repay them after five years. See: R4.6bn Pickvest rescue hinges on property billionaire.
Georgiou and his family own property jewels such as the Fourways Mall, Cedar Square, and Loch Logan Waterfront in Bloemfontein.
As part of the rescue plan, Georgiou was supposed to transfer properties worth billions of rand to a public company called Orthotouch. This would provide investors with some security should Georgiou fail to meet his obligations.
However, nine months after the rescue plan’s adoption, most, if not all, of the properties have not yet been transferred into Orthotouch’s name.
Orthotouch legal adviser Theo Koutsoudis has declined to comment on the failure to transfer properties. Says Koutsoudis: “I confirm that I am at this stage not authorised to divulge any information suffice it to state that the Business Rescue Plan is proceeding despite efforts to derail the process by persons pursuing their personal agendas.”
Moneyweb can also reveal that valuable properties that were supposed to be transferred to Orthotouch have been sold. The proceeds of these sales amount to more than R400m. Some of the larger properties sold include: Southdale Shopping Centre for R175m; 1 Centex Close, Sandton for R99m; Pembury Lodge for R45m; Safeside, Mpumalanga for R15m; and 5-7 Main Road, Melville for R13m.
Koutsoudis has similarly declined to comment on what money from the sales of the above properties was used for.
There has also been a shakeup at Orthotouch board level. Chairman Jannie Nel recently had his services terminated. Nel declined to comment on his departure from Orthotouch.
Nel’s departure leaves Orthotouch with four directors: Nic Georgiou, Panos Kleopvoulou, Hans Klopper and Connie Myburgh.
Under the rescue plan, Georgiou, through Orthotouch, promises to pay investors in the syndication companies a reduced monthly income for five years. At the end of the five-year period, Orthotouch promises to repay investors their full R4.6bn. See: Pickvest: Billionaire gets five years to repay investors.
The success of Orthotouch will depend on the directors’ ability to increase the net value of its property portfolio to R4.6bn after five years. Inflation will assist the directors with this task but will also erode the value of the final payment to investors.
There is a concern that by selling the buildings mentioned above, Georgiou is eroding the total value of the assets that are pledged to Orthotouch, reducing the likelihood that their net value will ever reach R4.6bn.
Prior to publication a copy of this article was sent to Koutsoudis. He was invited to correct possible factual errors and offer any comment he may have. Koutsoudis responded:
Dear Julius
Your draft article is fraught with inaccuracies and innuendos. Your quote from my email states clearly that the Business Plan is proceeding. It follows that all funds are being utilised in terms of the Business Plan. Your statement that "Koutsoudis has similarly declined to comment on what money from the sales of the above properties was used for" is clearly therefore inserted purely for sensationalistic reasons.
Neither I nor the Board are prepared to make any further comments at this time, and certainly not within the time you stipulate.
All our rights are reserved.
Yours sincerely
Theo Koutsoudis
Curious about your commercial property energy consumption?
Well now you can check with the Green Building Council of South Africa's (GBCSA) Energy and Water Benchmarking tool that measures a building's consumption that are according to industry norms.
The pilot version and fifth tool developed for the South African market analyses existing building performance, and allows property managers to see how their buildings measure up in terms of energy and water consumption.
'This tool is powerful in assisting property owners to decide which properties to retrofit or sell, as well as being a useful marketing tool for star performers in a portfolio,' says GBCSA Technical Executive Manfred Braune.
'According to our calculations, energy consumption has increased from R8.66/m² to R30.46/m² over the past five years, in the case of some large office tenants,' notes Growthpoint Properties' Office Portfolio Divisional Director Rudolf Pienaar.
'Any efficiency we can achieve in order to keep costs down will benefit our tenants. The benchmarking tool will no doubt be of similar use to the property industry in general.
A combined focus by all property owners on reducing consumption will be of benefit to all occupiers of property, and contribute to a much-needed reduction in national consumption,' adds Pienaar
Source: thepropertymag
Northgate Shopping Center, Gauteng office units for sale
Just wanted to keep you up to date with asking prices for offices in an around the Northgate area, Gauteng i.e. close to the Northgate Shopping Center.
One of my associate property brokers recently listed 3 small office units close to the Northgate Shopping Mall. Each of them are 60m2 but two of them are on the same floor so can be used as 120m2 in total.
Very well managed, secure office park with plenty of parking and 24-hour security. Each unit is on the market for R583 000.
If you are a willing buyer, seller or tenant, welcome to email willem@propx.co.za for more info
If you are a willing buyer, seller or tenant, welcome to email willem@propx.co.za for more info
Going Rate for Bryanston Gauteng offices
At this stage Bryanston,
Gauteng offers a combination of three new office projects selling on a
sectional title basis at between R15 000 to R17 000 per square meter
starting at 250sqm per unit.
There are however a couple of “freestanding”
house/office conversions available at reasonable asking prices.
One of our
associate broker recently listed a commercial / residential converted property
in Bryanston at R 12.5mil, offering great value.
Welcome to
contact willem@willemtait.com for
more info
Bryanston Offices - FOR
SALE
Asking Price: R12.5mil
Under roof: 850 sqm
offices plus 1200 sqm three residential dwellings
Zoned: as
“multi-dwelling/offices”
Stand Size: 4350
sqm
-The offices are used by
the owner who lives in the main house and the two grown children with families
in the two semi-detached homes.
-Excellent security with
guard house at the gate.
-3 x three faze
electricity
Offices under tile:
GLA 850 sqm
Reception
9 x offices
3 x boardrooms
Plush waiting room
Full bathroom
3 x half bathrooms
Full kitchen
Dining room for staff
Full telephone system – 7
lines, 2 ADSL lines
Residences under tile:
There are three dwellings
of over 400 sqm each i.e. 1200sqm
2 Semi Detached homes 4 x
bedrooms en suite
1 Main house 2 x bedrooms
en suite
Pool room - planned space
for another three bedrooms (half size pool table negotiable)
Sauna
Thatch lapa’s next to
large pool
Large workshop &
garden shed
Sewing room
Servants quarters for
three
Gauteng Office Market Showing Signs of Life
With the economy growing (albeit slowly), business confidence at last back in positive territory and employment on the rise, the prospects are improving for SA’s office market.
Indeed, the latest available statistics from Rode & Associates show that rental increases for A-grade space were already beginning to manifest in most CBDs around the country (with Durban as the exception), and in several decentralised nodes during the fourth quarter of 2011.
However, this sector has a long way to go before it can really be said to be in recovery.
In Johannesburg, for example, the Jones Lang La Salle market overview for the fourth quarter of 2011 notes that the average achieved rental for prime (P) buildings in prime nodes increased by an average of only 0,5%, with the highest performer being Rosebank, at 1,7%.
The report says office take-up has improved in certain prime areas (mainly Sandton, Hyde Park and Rosebank), which has resulted in reduced vacancies in these areas – and slightly higher rentals (see graph).
This demand is, however, mainly being driven by companies seeking the convenience of transport nodes, particularly within the Gautrain reach, as well as consolidation for greater operational efficiencies. “However, the overall demand for offices is somewhat stagnant as many occupiers are merely moving between nodes and leaving secondary nodes with higher vacancies.”
Thus, while overall Johannesburg vacancies dropped in the fourth quarter from 10,4% to 10,3%, they actually increased on an annual basis from 9,9% in 2010 to 10,9% 2011.
The Johanneburg CBD and Braamfontein recorded the highest vacancy rate (17,4%) for the fourth quarter, while vacancies in decentralised secondary nodes increased from 9,3% to 9,7%.
The report notes that gross rentals for Grade-A stock increased by 1,7%, especially in areas such as Woodmead and Rivonia, while average rentals for Grade B offices moderated by 2,4%, mainly because landlords resorted to lowering rentals in order to mitigate increasing vacancies.
What is more, the development “pipeline” (planned office projects) in the fourth quarter, with completions expected to add some 159 000sqm of new office space to the Johannesburg total this year – mostly in Sandton and Bryanston (see table).
Meanwhile, in Pretoria, the current picture is quite similar, with the CBD losing private tenants and even some government departments to decentralised nodes that are able to offer better quality space.
Jan Oelofse, leasing and sales broker for JHI Properties, says that although low-rental space is available in the CBD (around R65/sqm for B-grade space and R45/sqm for C-Grade), insufficient parking facilities in the city centre and ageing buildings that are costly to maintain and incompatible with modern technology are big deterrents.
“Most companies would rather move to decentralised nodes where they can find premises at acceptable rentals in modern, economically designed buildings with sufficient parking.”
Particularly popular at the moment are Hatfield, which is close to the Pretoria Gautrain terminus and currently has a vacancy rate of around 6%, and Brooklyn, which has a total of approximately 162 000sqm of P and A-grade office space developed around a shopping mall. The demand for this area is reflected in the low vacancy rate of 2 to 3%.
However, says Aida Commercial broker Ewa Schütt, even in these areas rentals are expected to move sideways for at least the rest of this year. “Enquiries for space have actually been lower this year than last, and we find that many companies here are still rebuilding after the recession rather than expanding. In addition, those who are taking up new space are reluctant to sign long leases, even though they might gain by doing so now at lower rentals and escalations.”
Her predictions for the CBD are, however, a little brighter. “Rentals for A-grade space are rising here because a shortage of space is being created. It is government policy to move back to the CBD and on top of that several buildings have been converted to residential use.”
Source: Property Junction magazine
Woodmead, Sandton office building for sale R4.3mil
Just a quick update on properties for sale in the
Woodmead, Sandton, Gauteng area.
We recently listed a 390 square meter, freestanding face brick
property in an office park in Woodmead, Sandton.
If you are a willing buyer, seller, tenant or property broker with a client, welcome to email me at willem@propx.co.za and I will gladly be in contact.
Basic info:
- Size - 390sqm
- Asking Price: R3.4mil
Africa’s tallest building earmarked for Centurion
Mayor Kgosientso Ramokgopa’s announcement of the ambitious project last month has drawn both criticism and praise from a number of quarters, including business, architects, scientists and sceptics.
A consortium of promoters, have clarified their position on what the R17bn development, dubbed the will entail in terms of cost and implementation. Welcome to email willem@propx.co.za for more info.
“What has been done is a desk top study based upon extensive research. A number of the results of this research still has to be verified. There is a fair amount of work to be done between the conception of a development and the actual implementation.”
One of the major concerns raised so far has been the dolomitic nature of the proposed site on and around the Centurion Lake located between the Ben Schoeman Highway and the N1 Highway corridor adjacent to the Gautrain station.
Mayor Kgosientso Ramokgopa announced last month that the tallest tower will reach 110 storeys and will be flanked by two highrises of 80 and 60 floors each. The total height of the tallest tower will be 447m.
A technical survey is yet to be conducted to test the integrity of the ground earmarked for the development’s foundation. He added that geologists and engineers involved hope to have concluded their technical survey by September 2012.
Critics have said the foundation for a building higher than 100 storeys would have to be extremely deep, costing an exorbitant amount. In order to obtain yield from this, landlords would have to charge in excess of R200 per m².
The construction of the foundation will be a challenge. “I don’t know how far down we will have to dig, but it will be a small mine.”
He says depending on the outcome of the technical survey and other studies, the concept in its current form might have to be shelved.
Source. moneyweb.co.za (amended by OfficeForSale)
Sandton Gauteng Offices for Sale
We are proud to offer you a unique property opportunity to own your own offices or invest in the heart of Sandton, Gauteng, South Africa.
The new office development will be situated on a prime site in the Sandton CBD, only 50 meters from the Sandton Gautrain Station.
The completed building will consist of 8 floors of offices and 2 floors of exclusive residential apartments. There will be 6 levels of basement parking below ground, providing a generous parking ratio of 4 bays per 100m² for the offices.
Completed office and residential units will be sold on sectional title and the anticipated completion date is November 2013.
The new office development will be situated on a prime site in the Sandton CBD, only 50 meters from the Sandton Gautrain Station.
The completed building will consist of 8 floors of offices and 2 floors of exclusive residential apartments. There will be 6 levels of basement parking below ground, providing a generous parking ratio of 4 bays per 100m² for the offices.
Completed office and residential units will be sold on sectional title and the anticipated completion date is November 2013.
There will be 45 office units, ranging from 120m² to approximately 1000m². Individual units can also be combined per floor measuring aproximitaly 2500 m². Priced at just over R31, 000.00 per m², including parking, storerooms and balcony the investment provides scope for strong capital appreciation.
The 7 residential penthouse apartments will offer the ultimate in exclusive, luxury living with generous spaces and top of the range finishes to go along with spectacular views and of course the ease of access to the Gautrain.
Options are available from 119 square meters at R3.95mil with parking and storage included. Alternative sizes are also offered from 250’s, 400’s, 500’s, 700’s or 2500 square meters per floor.
Welcome to give me a shout on 084 491 1123 or international +27 (0) 84 491 1123 or willem@propx.co.za to have a quick consult per phone, Skype i.e. willem.tait or arrange a meeting to view the offices.
Alternatively, please click here and complete the quick contact form.
Please note that we also offer alternative commercial purchase, lease and sale options in the Sandton area as well as Gauteng, South Africa and Africa.
Get a copy of the new Property Sector Charter (effective 1 June 2012)
The objectives of the Charter is, amongst others, to:
-Promote economic transformation in the property sector in order to enable meaningful participation of black people including women, the youth and people with disabilities;
-Unlock obstacles to property ownership and participation in the property market by black people;
-Promote property development and investment in under-resourced areas which enhances basis infrastructure, encourages investment and supports micro and small enterprises and;
-Enhance entrepreneurial development and increase the number of B-BBEE firms and SMMEs providing services and products to the sector whilst promoting sustain able growth of such firms.
For your ease of reference CLICK HERE to download the Property Charter
Rates shock with new property valuations
The lifespan of the initial valuation rolls in terms of the Municipal Property Rates Act is nearing at close. The rolls have to be adjusted every five years, which period can be extended by one year.
Espach explains that although the act came into force in 2006, most municipalities drew up their valuation rolls between 2007 and 2009.
This was the first time that both land and improvements were taken into account and farm land was included on a broad scale, ignoring the former sliding scale.
Cape Town is already using a second roll, but most other municipalities, including Johannesburg, Ekurhuleni, Tshwane, Nelson Mandela Bay and Mangaung will only compile a new one next year. eThekwini is starting to use a new roll this year.
Municipalities begin preparations at least a year ahead of time. Tshwane's valuations start in February so that they can be published for comment in January next year. Johannesburg's tenders for the valuation work closed late last year.
We advise property owners to establish what the schedule is for the municipality in which their properties are situated.
Statutorily the authority concerned must inform the owner of the new valuation, but this does not always happen. If the permissible period has expired without an owner registering an objection, it becomes more difficult to correct faulty valuations and an owner could for the next five or six years be saddled with a high rates account.
Many property owners received a severe shock in the previous round. Many municipalities appointed new assessors who did not know the area and many mistakes ensued.
In a case the valuation of a shopping centre was reduced by the appeal board from R555m to R323m by the appeal board. Some of these issues are still outstanding.
If, after an objection, a valuation is adjusted by more than 10%, the law determines that it must be reviewed by the appeal court. None of Johannesburgs reviews have yet been finalised.
The law allows a minimum of 30 days for objections, but many municipalities extend this to 60 or 90 days.
Source: Sake24
In a case the valuation of a shopping centre was reduced by the appeal board from R555m to R323m by the appeal board. Some of these issues are still outstanding.
If, after an objection, a valuation is adjusted by more than 10%, the law determines that it must be reviewed by the appeal court. None of Johannesburgs reviews have yet been finalised.
The law allows a minimum of 30 days for objections, but many municipalities extend this to 60 or 90 days.
Source: Sake24
New Real Estate Investment Trust (REIT) legislation
The new Real Estate Investment Trust (REIT) legislation has been earmarked for finalisation in 2013.
The internationally recognised REIT structure exists in countries such as the US, Australia, Belgium, France, Hong Kong, Japan, Singapore and the UK, explains Estienne de Klerk, REIT Committee Chairman of the Property Loan Stock Association (PLSA), which is spearheading the SA initiative to establish a best of breed REIT vehicle. Introducing the REIT structure will bring SA listed property investment in line with international norms.
Over the past 10 years, listed property has become the most active sector on the JSE in terms of new listings, mergers and acquisitions. It has shown resilience and relevance. It has also grown, matured and volunteered an extremely high level of stakeholder transparency.
Presently the listed property sector comprises five Property Unit Trusts (PUTs), but about 20 Property Loan Stocks (PLSs), the largest of which are major counters on the JSE: Growthpoint Properties, Redefine Properties and Hyprop Investments. These numbers reflect the industry preference for the PLS structure. PLSs have also been responsible for the sectors growth, and represent its most thriving counters.
The listed property sector has been working with National Treasury for over five years to formalise REIT legislation in South Africa. Neither of the current structures, PLS or PUT, offers the uniformity and simplicity to facilitate international investment. In addition, there has been some potential for tax uncertainty, which is in itself enough to deter some international investors.
The REIT structure typically provides for the flow-through of net rental to the investor, after expenses and interest. This income is ultimately taxed in investors hands, as is normal, says de Klerk.
REIT legislation discussions were initially slow as a result of the various industry complexities and a number of immediate issues facing National Treasury, highlighted by the global financial crisis.
However, the April 2011 tax legislation amendment bill raised the priority of REIT legislation, particularly the proposed Section 8G which deals with debentures with no specified termination date.
Had it not been willingly suspended by National Treasury, this section would have resulted in the debenture interest distributed out of PLS companies being taxed as a dividend, notes De Klerk. This would have destroyed significant value in the listed property sector.
The proposed amendment was never intended to have a negative effect on the sector and was, in fact, designed to prevent tax leakage in other structured finance transactions. National Treasury suspended Section 8G until the successful completion of REIT legislation, which it has stated is a priority and is intended for finalisation by the end of 2012 or early 2013.
De Klerk reports that considerable progress is being achieved with the potential proposed REIT regulations, as well as seeking an appropriate regulatory framework and efficient REIT structure for South Africa. National Treasury has committed a vast deal of time to understanding the listed property industry and defining areas to benefit from regulation and excluding those that will not.
The sector, through the PLSA, Association of Property Unit Trusts (APUT) and appointed REITs advisors, has had various productive meetings with the National Treasury Tax Policy Unit as well as the JSE Limited and Financial Services Board. In December 2011, National Treasury met with UK and European experts including representatives of the European Public Real Estate Association (EPRA), and a KPMG experienced UK revenue services specialist to learn about best of breed practices in the UK and globally.
It is expected that internally and externally managed REITs will be included in the legislation. De Klerk points out that while providing flexibility in management structure, the worldwide trend is for investors to favour an internally managed company, however local REIT factors are considered.
We anticipate a governance framework consistent with modern best practice, says de Klerk. Investors should be able to vote on large transactions and appoint or remove those vested with management power. De Klerk further points out that additional governance protection results from being listed on the JSE, ensuring the transparent, effective, professional management essential to protect
investors.
The new legislation should also give companies currently in the listed sector the opportunity to access the new SA REIT structure, with no entry charge. This structure should also deal with the unique variations and competitive differences of the sector component companies, without stifling operational efficiency or having unintended consequences and inhibiting the ability to respond appropriately to changing circumstances and conditions.
The new SA REIT structure should provide tax certainty and efficiency relating to distributions. It should also cure anomalies in the availability of tax deferral or roll over relief for mergers and acquisitions, says de Klerk.
A single unified umbrella body for listed property in SA is also expected to emerge in the near future with the PLSA and APUT merging.
Source: PLSA
Vacant office space pressure landlords
The number of To Let signs outside vacant or partially vacant buildings is a reflection of growing desperation on the part of landlords says analysts.
In an effort to let space and reduce nagging vacancies, landlords are being forced to be more liberal with broker commissions, tenant installation allowances and rent-free periods.
Office vacancies are rising in cities as the economy struggles to start humming again, and a recovery is not expected soon.
While most of the increases in vacancy rates are marginal, they confirm a trend that should concern landlords and developers.
According to South African Property Owners Association-IPD (Investment Property Databank) research for the fourth quarter of last year, national office vacancies increased to 10,4% from 10,2% in the third quarter.
The A-grade office vacancy rate is 8,5% and P-grade offices have a vacancy rate of below 3%.
Should the rising vacancy rate trend continue, it is expected to damp rental-income prospects and affect valuation rates.
Stanlib property funds head Keillen Ndlovu said yesterday that the number of To Let signs on Rivonia Road had to be seen to be believed. Here you can easily find two to three big To Let signs outside each of the vacant or partially vacant buildings. This is a reflection of desperation
The oversupply of office space in the past few years was a result of liquidations of small companies, he said.
The higher the vacancies, the lower the rental income, which leads to a lower property valuation. Mr Ndlovu said vacancies were a cost to landlords due to the opportunity cost of sitting with a vacant or partially let building.
Higher vacancies mean landlords are paying rates even for vacant space. They are also paying for services like security, gardening, not to mention paying for interest costs if the property is funded with debt without full rental income.
Meago asset manager Thabo Ramushu said office sector recovery would depend largely on the growth in employment in the financial services sector.
Demand is expected to emanate for the A-grade market with B-and C-grade space likely to suffer further. Decentralised office nodes are expected to show the best growth potential, while central business districts are likely to suffer further.
Mr Ramushu said the industrial market was expected to continue to perform well with minimal vacancies, which fell to 4,2% by year-end.
However, the smaller and mid-tier industrial units are taking longer to fill up, while the big box, logistic space outlook remains optimistic with limited supply as the underpin.
Optimism in the building industry remains weak with low levels of building plans passed. Speculative development will remain subdued and should be supportive of the absorption of vacancies, Mr Ramushu said.
via I-Net Bridge
3000 Property state leases, tenders to be policed
The minister of public works and I have agreed to undertake a joint review of the validity and cost effectiveness of all government property leases, he said in delivering his 2012/13 Budget in the National Assembly.
Pressed for a timeline for the review of 3 000 contracts, Gordhan would say only that it would take roughly a year.
His announcement comes in the wake of the 2011 police headquarters lease scandal and the national government intervention in Limpopo, Gauteng and Free State.
Gordhan said one of the lessons learned from placing several provincial departments under administration was the need to clean up tender systems.
We need stricter oversight of supply chain management processes.
He told a media briefing on the budget that the Treasury would play a key role in policing the tender process and preventing nefarious abuses by what he insisted was a minority of civil servants.
The Treasury is going to be a key part of making sure that there is both expeditious facilitation of these processes of procurement on the one hand, but on the other hand to keep an eye on making sure that we get the right value for money.
Gordhan said his department would draft a price referencing system to make it easier to detect tenders that exceeded acceptable levels.
There were instances, he said, where contractors had factored bribes into the prices charged to the state.
The Treasury would also appoint a chief procurement officer to monitor tender processes across all levels of government. There would be strict vetting of all procurement officers and a review of the skills requirement for people in those positions.
Finally, the tax clearance system would be strengthened to bar fraudsters from doing business with the state.
The former head of the Special Investigating Unit, Willie Hofmeyr, estimated last year that corruption cost the state up to R20bn a year.
Public Works Minister Thulas Nxesi said that as the review of government leases progressed, he would take landlords holding unlawful contracts to court to reclaim rent the state had paid them.
Nxesi replaced Gwen MahlanguNkabinde, who was sacked in the police headquarters scandal.
He said coming to office against a backdrop of lease scandals had alerted him to widespread problems surrounding leases, including a lack of capacity in his department. This also raised the real possibility of fraud and corruption on a grand scale.
Nxesi said he had no choice but to turn to the Treasury to provide public works with procurement training and oversight: I have conceded that the department lacks the capacity to turn around the problem with the leases," he said. Treasury does have capacity to assist and indeed we have been working closely with the Treasury technical assistance unit.
Source: Fin24
The former head of the Special Investigating Unit, Willie Hofmeyr, estimated last year that corruption cost the state up to R20bn a year.
Public Works Minister Thulas Nxesi said that as the review of government leases progressed, he would take landlords holding unlawful contracts to court to reclaim rent the state had paid them.
Nxesi replaced Gwen MahlanguNkabinde, who was sacked in the police headquarters scandal.
He said coming to office against a backdrop of lease scandals had alerted him to widespread problems surrounding leases, including a lack of capacity in his department. This also raised the real possibility of fraud and corruption on a grand scale.
Nxesi said he had no choice but to turn to the Treasury to provide public works with procurement training and oversight: I have conceded that the department lacks the capacity to turn around the problem with the leases," he said. Treasury does have capacity to assist and indeed we have been working closely with the Treasury technical assistance unit.
Source: Fin24
E-tolling set to affect property decisions
According to property experts the proposed tolling is coupled with reported additional taxes for properties situated along public infrastructure corridors such as the Gautrain, a factor that will place increased pressure on consumers, affecting the retail and industrial markets.
Transport issues are also increasingly affecting the commercial property market with regard to choice of location, with the Gautrain stations a key positive factor.
The opening of Gautrain routes as well as the implementation of the bus rapid transit routes has increased demand for properties close to those routes. The opening of the Sandton Gautrain station has opened up the Sandton retail precinct to a wider consumer market to the north, which now has easier access.
A new trend in the marketplace is that due to the lack of new stock coming on to the market, older buildings are in demand and can be acquired at competitive prices.
In addition, landlords driven by the need to fill vacant space are prepared to accept lower initial rentals. However, in such instances escalations tend to be higher than in the last few years.
Source: Business Live (amended)
Building index climbs most in nine months. Investors are seeing opportunity
The ten member FTSE/JSE Africa Construction and Building Materials index climbed 2,5% to 44,81 at the close in Johannesburg, its biggest increase since June 7. Pretoria Portland Cement Co led gains.
The construction sector may have bottomed after the index fell 26% last year, Henre Herselman, a derivatives trader at Nedbank Group BoE Stockbrokers in Johannesburg, said by phone. Investors are seeing opportunity.
Pretoria Portland Cement, biggest cement producer in South Africa, rallied 4,1% to R31,35, bringing its gain this year to 14%. Murray and Roberts Holdings, the second largest construction company, rose 3% to R29,25. Group Five added 1,7% to R27,72 rand while Aveng advanced 1,9% to R36,70.
Source: Moneyweb(amended)
Source: Moneyweb(amended)
440 000 small business could be back in the market
Around 440 000 small businesses have closed in the last five years, according to the Adcorp Employment Index released today.
The group February 2012 employment index highlights with alarm the closure of 440 000 small businesses over the past five years, Loane Sharp, labour economist at Adcorp, said in a statement.
In addition, the number of new business start ups was at an all time low.
The gravity of the situation is emphasised by the fact that 68% of all South African workers are employed by small business employing fewer than 50 people, Sharp said.
Given that the typical small business employs 12 people (aside from the owner-manager), a revival of this sector could potentially create 5.3 million jobs.
In 2001, around 250 000 people were involved in starting their own businesses. In 2011, only 58 000 people were trying to do so, a decline of 76%, Sharp said.
Applying the average ratio of 12 workers per small business, the reduction in entrepreneurial activity over the past five years has reduced the economy job creation potential by around 2.3 million jobs.
Sharp said if the recession were the only factor to blame, then this trend should reverse as the economy recovered. However, regulatory issues were not helping.
The World Economic Forum Global Competitiveness Report for 2011 cited labour problems , weak public education, restrictive labour laws, and a poor work ethic, as among the most problematic factors for doing business in South Africa, Sharp said.
Small businesses offer the only real prospect of large-scale job creation in South Africa, yet conditions for small businesses have deteriorated markedly. The number of people trying to start their own businesses is a critical indicator to watch in the coming months.
Source: City Press (amended)
Applying the average ratio of 12 workers per small business, the reduction in entrepreneurial activity over the past five years has reduced the economy job creation potential by around 2.3 million jobs.
Sharp said if the recession were the only factor to blame, then this trend should reverse as the economy recovered. However, regulatory issues were not helping.
The World Economic Forum Global Competitiveness Report for 2011 cited labour problems , weak public education, restrictive labour laws, and a poor work ethic, as among the most problematic factors for doing business in South Africa, Sharp said.
Small businesses offer the only real prospect of large-scale job creation in South Africa, yet conditions for small businesses have deteriorated markedly. The number of people trying to start their own businesses is a critical indicator to watch in the coming months.
Source: City Press (amended)
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