By: Sarah Hudleston Source: Business Day
Buying student accommodation can have extra tax benefits.
For many people, investment in the property market is one of the most secure sectors to put money into and student accommodation is one area that is primed for a boom. With the announcement last year by former President Jacob Zuma that all first-year students from households earning an income of less than R350,000 a year will be eligible for free university education, the demand for formal student accommodation will grow exponentially.
SA is attracting higher numbers of students from other countries in sub- Saharan Africa. The latest research by Jones Lang LaSalle (JLL) has found that the number of young adults across the region aged 18-25 will increase to almost 100-million by 2020. The demand for new, purpose-built student accommodation is set to top 500,000 beds in the next five years. The JLL report says that with continuing public sector budget constraints (and not only in SA), private investors may well find that `student housing projects are among the most attractive investments they can make in Africa`.
Making it even more attractive for investors interested in this sector is the Section 121 tax legislation of 2009, a tax initiative introduced by South African Revenue Service to boost the `Provided the shares are held for at least five years, the tax authorities will not recoup the initial tax benefit` Dino Zucollo, fund manager, Westbrooke Alternative Asset Management economy by encouraging investment into a range of private companies that meet defined criteria. Westbrooke Alternative Asset Management is SA`s largest Section 12J company, and fund manager Jonti Osher says it looks after almost half the capital invested in S12J funds in the country. The company recently began offering tax-deductible investments in the student accommodation and hospitality asset sectors.
`The S12J investment tax incentive gives individuals, companies and trusts the ability to write off 100% of the investment against their taxable income in the year in which they invest,` says Osher.
Investors can benefit from up to 45% immediate tax relief, reducing the cost of the investment while providing downside protection and enhancing overall returns, he says.
Fellow Westbrooke fund manager Dino Zucollo says the only caveat is that the investment must be held for five years. `The investment should be made at the end of the tax year, on February 28. But even if would-be investors have missed the deadline, they have ample time to consider this type of investment for the next year. Provided the shares are held for at least five years, the tax authorities will not recoup the initial tax benefit,` says Zucollo. `After five years the full proceeds from the sale of the shares will be subject to capital gains tax.`