PropDom

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Rental Market of Cape Town, South Africa

The rental market in Cape Town has seen some growth in recent times with the emerging black middle class and banks tightening lending criteria. Unfortunately the options available to finance property for the express purpose of renting it out are not numerous. Coupled with low interest rates, finding tenants might be an issue.

 

 

Real-estate investment in Cape Town is still seen as one of the best long-term investments and many economists are predicting an upswing in the market in the near future.

 

Rental market current position

With buy-to-let mortgages sitting at around only 8% of total mortgages (as of 2011), it would appear that most investors in rental properties are either bidding their time or preferring to use other financing options.

Of course the flip side of the rental coin is that most potential renters are trying to get onto the property ladder while the interest rates are low, hence the percentages aren’t always an accurate reflection.

  • Real estate is cheaper in Cape Town than in some of the other large South African cities and it is easier to build up a portfolio of rental properties for yourself.
  • Should you choose the right location, then you could potentially tap into the lucrative tourist rental market.

Returns on investment

Cape Town has recently struggled to provide a good return on investment in terms of rentals.

  • The current figure sits at about 5% return on houses and apartments, which is worse than some other investment options on the market.

Once you factor in the inherent risks of renting your property, then it looks an altogether less attractive option. Of course this is just an average and for those willing to take a chance there is always the possibility for a higher return.

Taxes on rental income

Taxation on rental income in Cape Town is the same as the nationwide taxes, of which you would expect the pay the following:

Rental income

Any annual rental income equal to or less thanR160,000.00 is taxed at 18%.

  • Tax rates are on a sliding scale and once you hit the threshold of R617,000.00, then you can expect the tax rate to increase to 40%.

Capital gains tax (CGT)

To calculate this tax,add 33,3% of the total capital gained to the amount of income earned(within the tax year), and then charge tax for the total amount. This has the effect of possibly putting you into a higher tax bracket.

Inheritance tax

Whenever a property is inherited, then it is subject to an inheritance tax. This is currently set at 20% of the dutiable amount of the estate (total estate value less R3.5 million).

Residents

Any resident of South Africa will be taxed on their worldwide income. The tax brackets range from anywhere between 18-40%depending on level of income.

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This entry was posted on April 4, 2014 by in Cape Town and tagged , , , .
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