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Tax incentive brings investment
06 February 2012

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THE Urban Development Zone tax incentive is luring property investors into Joburg’s inner city, with about R9-billion ploughed into the area already.

ABOUT R9-billion has been invested in property development in the inner city since the Urban Development Zone (UDZ) tax incentive was allocated to Joburg in 2004.

Lebo RamoreboliLebo Ramoreboli, deputy director for inner city investment in the department of economic development“The heart of the city of gold is experiencing ‘a second gold rush’ in the form of property investments. Today’s scramble for investment in Joburg’s inner city is not driven by the promise of the original gold; instead by the boom in property investment and development,” says Lebo Ramoreboli, the deputy director for inner city economic revitalisation in the City’s department of economic development.

She attributes the surge in economic investment to growth in investor confidence in the inner city, which has undergone extensive upgrades and revitalisation in recent years – with more to come. “[Joburg] is set to experience a massive spurt of growth and wealth,” she says.

Major investors include commercial and merchant banks, mining houses and private developers who are building new high-rise office buildings, hotels and hotel apartments. The conversion of offices in Braamfontein into student accommodation – referred to as lifestyle precincts – and other sectional title modern flats are some of the investments.

She indicates that black economic empowerment, women and young investors have also taken advantage of the opportunities and have invested in sectional title units and “are reaping benefits from their investments”.

All are beneficiaries of the UDZ tax incentive, which has enabled them to claim up to 100 percent of their investments over time, says Ramoreboli.

The tax incentive is aimed at encouraging the renewal of cities across South Africa. Any taxpayer, property owner, individual or entity may claim the benefits if they either refurbish an existing property or create a new development in specified inner cities.

The Zurich buildingTaking advantage of tax incentives: The Zurich buildingIt comes in the form of accelerated depreciation on the amount of investment made towards buildings’ construction or refurbishment in the designated area. It reduces investors’ taxable income and inherently their tax burden. In addition, it is not limited to the investment-related taxable income and can be carried forward against the business losses.

Joburg’s commitment
Since 2004, the City has demonstrated strong commitment to the promotion of the UDZ tax incentive by investing considerable resources towards its marketing and the co-ordination of the inner city’s stakeholders’ inputs and support. This has contributed substantially to the more than R9-billion worth UDZ-related private investment that was recorded at the end of the last financial year.

In respect of geography, the UDZ covers about 1.8 hectares from Bellevue/Yeoville in the north to the M2 freeway in the south.

Depreciation amounts
The depreciation amounts are computed in several ways:

  • Construction of, extension or addition to an entire building: 20 percent of the construction costs in the first year of depreciation and a further 8 percent annually for 10 years;
  • Improvement or addition to part of a building or sectional title unit of 1 000m2 or more: 20 percent of the improvement costs annually for five years or a five-year straight-line depreciation;
  • Erection of, extension or improvement to low-cost housing units: 25 percent depreciation for four years in respect of refurbished units and a seven-year depreciation period for newly constructed units;
  • Buying an improved building directly from a developer: amount that qualifies under the UDZ amounts to 30 percent of the purchase price in respect of renovated buildings and 55 percent in respect of new buildings.

AbsaAbsa is just one of the companies with huge investments in the inner cityThe development of property leased from the government for the purposes of income generation amendment was presented as a bill to the national parliament in 2010 and was to be effective on 1 October of that year. The direct beneficiaries of this amendment will be the Inner City Property Scheme, Gautrain Park Station transit-oriented development (ToD), and the planned railway decking precincts over the lines between Braamfontein and Newtown, as well as the planned business process outsourcing (BPO) precinct.

Investment
In promoting UDZ-related investment, the department points out that Joburg’s inner city has state-of-the-art infrastructure and is already the site of massive investment. “The inner city is being physically transformed before everybody’s eyes,” Ramoreboli says.

The City and inner city stakeholders are implementing two parallel revitalisation programmes.

Firstly, there is the Inner City Charter, endorsed by the council in 2007. It mobilised inner city business formations, the youth and female investors, NGOs, residents and to work together to improve the investment climate and infrastructure.

Inner cities and central business districts have typical characteristics. Internationally, it is acknowledged that core business districts anchor large cities’ economic strengths. Typically they are economic epicentres that carry the largest state-of-the art infrastructure. Yet in many instances, they experience capital flight leading to economic decline and physical dereliction.

Joburg’s inner city bears all these hallmarks. But despite these challenges, it remains a robust urban infrastructural node. It anchors a strong financial district, mining houses infrastructure and the headquarters of multinational corporations. Its strength is derived from its unique social diversity and skills base.

According to Ramoreboli, the Inner City Charter compels the City, in partnership with private business formations and other role players, to address basic service delivery challenges to enhance the investment climate; and eliminate impediments that typically beset CBDs and downtowns internationally, such as urban decay, dereliction of buildings, crime and grime, and poor urban management, all of which lead to capital flight.

The UDZ initiative is a critical government tool for halting the decline and preserving the infrastructure.

The major UDZ investors in the inner city are:

  • Southpoint: Braamfontein Student City;
  • Afhco;
  • Tiber/Turbine Square: Anglo-Gold Ashanti headquarters;
  • City Property;
  • Johannesburg Land Company: Zurich Building;
  • Lionshare: group hotels;
  • Absa Bank: Absa Campus;
  • FNB;
  • Standard Bank;
  • Anglo American Corporation;
  • BHP Billiton; and
  • Mapunbugwe Hotel.

    Inner City Economic Development Implementation Plan
    The second revitalisation programme is the UDZ-Anchored Inner City Economic Development Implementation Plan (ICEDIP). The economic development department, in collaboration with other City departments, inner city business formations and civil society, has developed this economic vision and high-level economic tool for stimulating the region’s economic vibrancy. Its primary purpose is to leverage on the success of the UDZ investment marketing to secure emerging economic development initiatives that will transform the inner city’s economic and physical landscape.

    The ICEDIP is being used by the City to advance the inner city’s job creation-driven economic imperative and strengthen the City’s practical service delivery agenda to be carried out with all the role players. It is a five-year economic transformation tool with measurable outcomes and a basis for the Inner City Economic Blueprint for the foreseeable future. It assigns accountability to all the role players.

    Several emerging initiatives are envisioned under the ICEDIP, including:
  • 21st Century Districts tax increment financing (TIFs) in Yeoville, Hillbrow, Troyeville, Bertrams, Bellevue, Berea, Mayfair, Brixton;
  • Expedite the Inner Property Scheme (ICPS) precinct developments throughout the inner city;
  • Informal trading economic progression and roll-out modernisation of street trading and urban infrastructure supported by city improvement district expansion;
  • Introduction of periodic markets as well as flea markets;
  • Expedite the commercialisation of Gautrain Park Station ToD precincts and government precincts – Park Station;
  • Expedite decking precincts: Doornfontein ToD commercialisation concepts; Fordsburg Interior Design Centre precinct concepts; Joubert Park;
  • Roll-out decking of the railroad “gulch” from Fordsburg to Doornfontein; and
  • Expeditious finalisation of City Deep Logistics Hub master plan.

“Our planned decking of railway lines will result in high value developable land from Fordsburg to Doornfontein, including the new Gautrain hub at Park Station. With this emerging initiative, the City will harness the energies of investors to create a new region. The economic future of the inner city of Joburg has never been brighter,” Ramoreboli says.

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