Harbour & Associates

The sale of property always attracts VAT or Transfer Duty but never both. Under special circumstances, the sale can be zero rated. This is when you buy a commercial property renting business as a going concern. Developers are invariably VAT registered, so the VAT that they charge you replaces Transfer Duty. They often advertise this as “No Transfer Duty” and then bury the VAT in their selling price, so you don’t see it. In the above example the Transfer Duty (after taking the VAT out of the price) would have been R44 963, but the VAT in the selling…

I have often said that it is cheaper to rent than to own your own home. I have also often said that the best form of investment is residential property for rental. So, how can these two apparently contradictory statements both be correct? Let’s first talk about renting rather than owning. Why is it cheaper? Because the people that we rent from did not make good investments. Their ROI can be as low as 3,5%. Usually they are either renting us a property that was at one time their residence and had been bought for that purpose, or they were…

I get so many people wanting to buy a shelf trust because they need to sign an offer to purchase urgently. Why? Because the seller has given them a deadline! What’s wrong with this scenario? Firstly, they should be buying the property in a company of which their new trust will become the owner. They clearly haven’t read my book “16 Steps to Wealth“ Then, they are not following one of the basic principles of successful property investment – you must not want anything badly. If you get the wants, you will not buy well, and don’t forget that…

When planning an Asset for Share swap using the s42 provisions in the Income Tax Act, you will see that the shares have to be new issues, not existing shares. As we invariably want all of the shares to be owned by a trust, we find it best to use a new company. The way an Asset for Share swap works is the new company issues 100% of its shares to the trust in return for an asset or assets (usually fixed property). There is no tax against this transaction. No CGT, no Transfer duty, no tax. There are, however,…

I was chatting to a client on Zoom and trying to do some quick arithmetic at the same time. I didn’t do too well! She had R35m which she wanted to lend to an investment company that would be owned by a new trust. The question was. How much tax would she pay as a result of s7C of the Income Tax Act. s7C says that she would have to charge the company interest on the loan at least at the official rate which is currently 5,25%. Because the company deducts the interest from its taxable income, that’s a negative…

You know, for a Pr(Eng); CA(SA); I can sound pretty dumb at times. Like when a client recently asked me if I was familiar with Velocity Banking. Nope, never heard of it! So he then went to some lengths to explain this miraculous method of paying off your mortgage bond in no time flat. Um, surely all you’re saying is that if you put all of your excess income over expenditure towards your bond, then, because that extra reduces the capital, it also reduces the interest and the interest on the interest? Yes, well, if you put it like that,…

Covid has changed our lifestyles so much that it got me thinking about the future of investment properties. Consider this – Many people (me included) have realised that there’s no need to go to work in an office. The universal acceptance of Zoom, Google Meet and now, even Whatsapp, have changed that. Office space is now left empty and unlettable. Some of us (me included) have even taken the next step and realised that if they work from home, then home can be anywhere. So why own property in one place, when you can rent (and move on) wherever you…

So many people think that first prize is to buy their own home. But is that really the best option? What does it entail? Insurance Gardening Maintenance Neighbours that you’re stuck with A big chunk of non-discretionary expenses Stress to sell when you want to move on So what is the alternative? Renting your home. The advantages? No insurance No gardening No maintenance Neighbours that you are not stuck with Flexibility to up size or down size Minimum stress when you want to move on Compare the long term financial effect. In the short term, the cost of renting is…

There are two excellent sources for some of your property calculations. They are www.Property24.com and www.privateproperty.co.za . They enable you to determine your bond repayments and your affordability. However…

It is critical that, before buying an investment property, you do the numbers in order to determine what price you are prepared to pay. If you do them properly, you will realise that finding a good buy is harder than you expected, but that simply forces you to buy with your head and not your heart. Here’s how I did it when I was in the buying mode of my property investment career. You need a modicum of Excel skills because you must build a model into which you can plug the numbers, and see what happens to the monthly…

If you think that the value of your investment properties is relevant, then your thinking could well be skewed. The only number that really matters is the net rental income that each of the properties produces. And it is the net rental income from which you would calculate the value. Having said that, it is possible that you could sell the property for more than its real worth (based on rental), and that implies that it is a bad investment that should be disposed of, and replaced by one that gives a better return. This typically applies at the top…

It was once fashionable to hold property in a company, so that when you wanted to sell it, you sold the shares only and the purchaser avoided Transfer Duty, so you got a better price. That led to a structure like this. This assumes that the properties cost R10m and are worth R40m when you die. The company must have borrowed the R10m to buy the properties, so it is worth the gain in the properties’ value. Despite changes to…

The property market in South Africa is undergoing zero or near-zero growth, doubtless because it reflects the economy in general, and also because so many income earners are leaving the country because they believe they can do better elsewhere. So, is it a good time to buy? It usually makes no difference whether you buy when the market is low or when it is high. The trick is always to buy below prevailing prices. The first consideration is why are you buying? Somewhere to live. If this is a first time buy, then yes, buy when the market is low.

I have a client with a property portfolio of just short of R500m. He has been enslaved by his bank and SARS. Here’s how – Government departments only want to rent property from black owned enterprises, so, in the early days, my client was able to buy commercial properties from white owners, negotiate 10 year leases with Government departments and then take those leases to his bank for finance. The bank would then discount the future rental income to present day values and grant a facility for that amount of money. So initially the money received from the bank exceeded…

I recently had a call about whether student accomodation is a VATable supply. This is an important consideration if you are planning to buy a property for that purpose. I could not answer off the top of my head, so had to do some research and surprise, surprise, there is no simple answer. The South African Institute of Chartered Accountants discuss the matter in some detail, but I have to confess, that after studying the article several times, I still don’t know the answer to the question. In essence, the question is whether the agreement is…

We have been looking at rentals for penthouses and have found that the returns on high end residential property are terrible. The first thing we noticed was that a penthouse that was for sale for R15m was available, fully furnished, for rent at R55 000 pm. That’s a gross return of only 4.4% before levies etc. It had originally been on the market for R22m! Then there was another one for sale at R12m and available for rental at R45 000 pr month, beautifully furnished. Gross return 4.5%. Now, it is possible that the owners bought at a significantly lower…

We’ve decided to sell our house and rent an apartment instead. Now why would we do that? Basically, because we wanted to change our lifestyle to one that allows more freedom and less responsibilies. But in the process, (and this only came after we sold) I calculated whether we had made a gain or loss while holding the house. We bought it for R1,8m in 2004 and sold it in 2018 for R2,8m. Profit or loss? At an average of 6% inflation, the value of money halves every 72/6 years (the Rule of 72), that is…

Once upon a time, you could sell the shares in a company that owned fixed property and only pay Securities Transfer Tax (1/4%). Then in December 2002 it all changed. That was a long time ago, but many people still don’t understand the full implications, so here they are – A Residential Property Company is one which owns a dwelling or dwellings and their fair value exceeds 50% of the assets of the company, excluding financial instruments. If shares in that company are sold, then the shares are treated as fixed property and the sale attracts Transfer Duty, not on…

There are several taxes that you need to be familiar with if you invest or trade in fixed property. Income Tax The seller will pay Income Tax on the sale of property which was bought (and perhaps renovated) with the object of selling at a profit. The taxable income will be added on top of any other taxable income earned by the seller before calculating the total tax (at 28% for companies and up to 45% for individuals). Capital Gains Tax (CGT) The seller will pay CGT on the sale of property which was bought (and perhaps renovated) with the…

I bought a house in Malvern for about R275 000 at the sheriff’s auction in 2010. I paid cash, then raised a bond for R300 000. The property pulled in R14 000 a month so everything was going swimmingly. Then, in 2013 it was hijacked. The highjacker had started running a creche at the house and was making a killing, so when I got an eviction order, he agreed to pay rental. That lasted for a while, then he stopped paying again. Meantime the creche was using an enormous amount of water and he didn’t pay me for the municipal…

Investing in Property

Can I buy property from a developer with no VAT and no Transfer Duty?

Why invest in property if renting is cheaper than owning?

The seller wants to sell!

What is the difference between an s42 company and an ordinary company?

Tax on s7C interest

Is Velocity Banking a good idea?

A different model for investment property

Rent? Buy? or Buy to Rent?

Where can I find a property investment calculator?

How can I calculate my expected net rental income?

How should I value my investment properties?

The Double CGT Trap

Should I be buying property now?

How the bank enslaved my client in a Debt Trap

VAT on student accommodation

Returns on up-market residential property

To rent or buy your home?

Transfer Duty on sale of a company owning residential property

Property Investment and Related Taxes

How I got rid of my last bad investment property

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