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In 2003, The City of Cape Town launched two Urban Development Zone tax incentives to entice investors into urban and inner-city renewal projects in the CBD (central business district) area, and the modern suburbs of Belville.
We look at what the scheme involves and chat to Paul Nel, Managing Director at WCB Property Developers which participated in it to find out more.
What is the Urban Development Zone?
Paul Nel (PN): It is an area identified by the City of Cape Town for regeneration that forms part of a tax incentive administered by SARS (South African Revenue Service) and which was introduced under the Income Tax Act in 2000. It allows property owners to claim a tax reduction of 55% of the purchase price (between R247,500 and R822, 250) against taxable income.
The tax allowance is claimed over eleven years at a rate of 20% in the first year and 8% in the following ten years and is recouped on the sale of the property, for an amount greater than or equal to the cost which be deferred for as long as the owner owns the property.
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The main aim of the tax incentive was to encourage private sector-led residential and commercial developments in inner city areas in Cape Town with developed public transport links.
How successful has it been?
PN: The short answer is “very”. Several developers have jumped at the chance to be able to build homes and uplift entire communities, while almost guaranteeing a quick sell. A good example is the state-of-the-art Wynne development situated in Parow, Cape Town.
WCB Property Development acquired the land, which was previously an old car showroom and garage, in 2021 and financed it with The National Housing Finance Corporation in just under a year – a significant milestone for such a young development firm. Once completed the development will include 309 well-designed residential units and the developers are especially keen to keen to encapsulate the upscale lifestyle and convenient comfort that comes with the live, work and play model. Approximately 600m2 of retail space has been added to the ground floor, as well as a gym, roof top entertainment area and generous landscaping.
Making the the development even more appealing is the R450,000 starting price, which is ideally suited to lower LSM, first-time buyers and astute investors.
How do property developers benefit?
PN: In addition to the obvious benefits to buyers, developers also enjoy some added perks.
A good relationship between the developer and municipality is of critical importance. Developing in a UDZ Zone means that the two can collaborate on submissions and any issues are sorted out quickly, which is crucial for a developer on a budget and deadline.
The heaviest impact for the Wynne development was when the city pulled back the PT1 and PT2 zoning allowances. It halted work as developers had to resubmit plans or changes designs which effectively caused a 10-month delay. Thanks to a good working relationship with the municipality, the issue was soon resolved, and approvals were obtained quite speedily afterwards.
