Real Estate Investor Magazine South Africa March/April 2019 | Page 24

GETTING STARTED
Venture Capital
Company investment
for distressed
property?
W
ith the February provisional tax period for indi-
viduals looming, news and financial websites have
been rife with adverts of Section 12J investment
service providers.
Adverts usually focus on the tax deductibility of up to
45%, depending on your marginal tax rate, and the targeted
returns of the funds. What the adverts fail to mention is that
the investment rate of these funds into qualifying companies
are relatively low and that funds can remain unutilised in an
interest-bearing trust account for an extended period.
The National Treasury indicate that by August 2018,
roughly R4 billion had been invested with VCC’s and around
R1.7 billion with qualifying companies. The difference has
been attributed to the time it takes to identify the right
investments.
The tax incentive was initially set up in 2009 to encourage
job creation, small business development and economic
growth, as in developed countries like the US and UK. This
is a noble ideal and the incentive aims to connect investors
with qualifying investment companies that require capital to
achieve the goals set out with its creation.
In keeping with our mission of consistently implementing
unique collaborative property-based solutions in line with
current property trends, Property Assist has taken a closer
look at the structure and how to apply our property origination
expertise and property investment framework to this structure.
Application of 12J to property investment
Section 12J (1)(b) prohibits immovable property
investments made by a Section 12J Venture Capital Company,
unless the immovable property is utilised in a “trade carried on
22
MARCH/APRIL 2019 SA Real Estate Investor Magazine
as a hotel keeper”.
Taking the above into consideration, if structured in the
correct manner, the following property related investments
opportunities can effectively attract the tax rebate associated
with Section 12J:
Hotels, student accommodation, lodges, guesthouses, and
serviced apartments.
During our procurement process, we have come across
various such opportunities that will be structured for
investment by an approved Section 12J Venture Capital
Company, with the same benefits of our other property
investment opportunities, but with the following differences:
Investment terms will be for longer periods than our
recovery type solutions
The current owners are still assisted and may obtain a
shareholding in these qualifying investment companies
The other advantage is that our property investors will view
the property investment opportunities before investment in
the 12J Venture Capital Company, who will then in turn invest
in the qualifying investment companies, without their capital
not deployed for an extended period.
Whilst a tax incentive certainly de-risks an investment, no
investment should ever be made based on that premise alone.
Qualifying investment companies with a property asset
base is usually also lower risk than companies who might not
own such property.
Should you be interest in such opportunities please call our
office for a personal discussion regarding 12J VCC investment
in property related opportunities.