May 19, 2025
Buying new property directly from a developer in South Africa isn’t just a lifestyle decision, it’s a strategic financial one. From significant VAT advantages to lucrative tax deductions under Section 13sex of the Income Tax Act, savvy investors are using these built-in benefits to maximize returns and reduce upfront costs.
Whether you're investing in a single luxury apartment or building a portfolio of five or more, understanding these incentives could save you millions over time.
When you purchase a brand-new property from a VAT-registered developer, the purchase price includes VAT — currently set at 15% — which the developer pays to SARS. This VAT-inclusive pricing model exempts the buyer from paying transfer duty, a mandatory tax applied when purchasing secondhand (resale) property.
By contrast, when buying from a private seller (not VAT-registered), you (as the purchaser) are liable to pay transfer duty, calculated on a sliding scale. Here's how the 2024 transfer duty rates break down:
Assuming you’re purchasing a R4 million apartment, this is how you would be affected depending on who you purchase your apartment from:
1. Purchasing from the developer: VAT is included, no extra tax due.
2. Purchasing from a resale (non-VAT) seller: The buyer is responsible for R304,275 in transfers duties
Section 13sex was introduced as part of the Revenue Laws Amendment Act of 2008 and officially came into effect on 1 July 2008. It was designed to encourage private investment in the residential rental market, particularly in newly built housing stock. Investors buying five or more new residential units (in one development or across multiple) can benefit from Section 13sex of the Income Tax Act. This section allows for:
1. A 5% annual depreciation on 55% of the total purchase price
2. Spread over 20 years
3. Applicable only to new units (direct-from-developer sales)
If you purchase five new units totaling R10 million:
1. 55% = R5.5 million (deductible value)
2. 5% of R5.5m = R275,000 tax deduction per year
3. Over 20 years = R5.5 million in total deductions
(Source: SARS Section 13sex Guide)
This incentive not only reduces taxable income annually but can significantly boost net returns over time — making this one of the most underutilized tools for South African property investors.
“What is also attractive and not many people are aware of it, is the Section 13sex of the Tax Act… It’s a very attractive, extraordinary incentive, but it has to be five brand-new units.” – Paul Berman
If you register a business and operate your apartments as a VAT-registered enterprise (e.g., Airbnb or long-term rental business), you may also qualify to claim the VAT back on the purchase price of the property, further improving ROI. This requires compliance with SARS regulations and ongoing VAT submissions, but the benefit is significant.
Buying direct from a developer not only gives you access to brand-new properties but unlocks powerful tax and cost-saving incentives. Whether you’re an individual buyer or portfolio investor, understanding how VAT, Section 13sex, and transfer duty work could be the difference between a good investment — and a great one.
