AboutTime Issue 39 | Page 2

GENERAL NEWS From the MD’s desk By Sandy Kelly Ahead of elections – Where are we headed in the Botswana property space? As always, it’s a challenging time for business and in our instance, property markets, ahead of an election. This time it seems to be more intense than ever before with competition for power and control of our country. Much is centred around politicking as the candidates canvas for support and votes. Not our business, but the whole hunting and elephant matter has also attracted worldwide interest. In the property space, as in the last two issues, I have written about the tax law changes that will have massive effects on how and what we do, namely the Tax Amendment Act and the proposed change to the Property Transfer Tax Act. We have implored government to consider the effects that the laws could have on the industry and everyone, including every business and every citizen’s wealth. Things have moved on a bit since and as it is an ever evolving topic, this message has also been updated since it was emailed to our stakeholders. In respect of the Tax Amendment Act, pleasingly, government has taken note of the Botswana business community’s concerns and as such, has issued an amendment to the Act exempting the VRLS companies and SMMEs from the limitation of interest expense to 30% of EBITDA which is a blessing for the listed property funds and small business. The VRLS model as an efficient investment structure would have been eroded to the point that it would either have been unsustainable so would have collapsed or the option would have been to migrate offshore – neither of which the country would have wanted. Other businesses, however, are still affected, so will surely be looking at ways to restructure which could result in a loss of both the business activity and employment in Botswana and the loss of tax should they migrate or close. ABOUT TIME, the quarterly newsletter of Time Projects Editor: Brett Marlin The 30% and 5% property transfer tax for non-citizens and citizens respectively was passed by parliament in August and Gazetted in September. Though it still must be promulgated (signed-off by the minister we understand) this is a serious concern for us in the property industry and our clients. Valuations WILL drop by a minimum of 25% which will erode every investor’s wealth including each and every citizen property owner. We are not sure that the government and MPs are aware of those consequences. Renowned economist, Keith Jefferis has published a report on what the effects are likely to be, but this seems to have been ignored or discarded. The Institute of Bankers has also made its concerns known via the Central Bank. All the banks’ securities for property loans will be devalued by 25% which in turn will affect the loan to value requirements. This is tantamount to a similar position in the global financial crisis of 2008 which was initiated by a sub-prime lending position which many banks found themselves in at the time. It is very unlikely that banks will be in the lending space in this situation. Already standing properties are cheaper than the cost of new development properties, so if this falls further, developments which also require funding for the development will most likely result in sales drying up completely. Managing editor: Faye-Marie Cloete Email: [email protected] Cell: +267 7137 6232 Contributors: Brett Marlin, Julien Matoka, Kagiso Sebetso, Turnie Morolong, Mmika Selei, Roy Mapharing and Heinrich Malan Tel: +267 395 6080 | Fax: +267 390 0160 | Email: [email protected] | Website: www.time.co.bw ABOUT TIME is published on behalf of Time Projects by Nova Communications (Pty) Ltd. The opinions expressed in this newsletter are those of the authors and people interviewed and do not necessarily reflect the views of the editor, publisher or Time Projects. While all precautions have been taken to ensure accuracy of information, the editors and publisher cannot accept responsibility for any inaccuracies which may inadvertently have occurred. 2 ISSUE 39 - SEPTEMBER 2019