End of vat relief for developers might free up units for buyers

15 August 2014

With the changes in legislation with regard to developers receiving relief from VAT, where the relief provisions of section 18B of the VAT Act allowed them to let residential properties out temporarily while holding them as stock in trade without the usage provisions of those units being altered, units that are being held back by developers might be released which could free up units and help alleviate stock shortages in some areas, says Lanice Steward, managing director of Knight Frank Residential SA.

As of 1st January 2015, section 18B will no longer apply, which means that developers will not be allowed to rent out residential property without the consequences of a “change of use” of those units. The implications of this, is that developers will have to pay output VAT if they rent these units out.

The VAT relief received has allowed developers to hold onto units and let this stock out during the difficult times of not being able to sell, but with prices in the Western Cape increasing year on year by 12,5% (according to John Loos’ latest FNB report), they could possibly easily sell these units now, said Steward.