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With activity returning to South Africa's residential property market, it appears that it is more
than Cape Town's beaches that Jo'burgers are after this summer.
"As much as 80% of new buyers of suites in the hotel are based in Johannesburg. This is indicative
of the significant renewal of interest in the Cape Town property market by investors up north,"
says David Solomon, chairman and developer of Pepper Club.
He says that while Gautengers have always been prolific buyers of property in Cape Town, the
interest in the city had dwindled over the last few years as rental yields struggled to match those available in Johannesburg.
Prior to the market downturn, rental returns were often as low as 3 - 5% per annum of the value of
the property. This fell far short of the prime interest rate, which at one point was as high as
15.5%. Once you add in management fees, levies, rates and taxes it became clear that many
buy-to-let properties no longer offered the best value around.
However, Solomon says with property values in the city having pulled back over the last eighteen
months and interest rates more than 30% lower than their highs in June 2008, the value proposition
for investors is significantly more favourable.
The rise of the hotel apartment scheme concept, which is proving to be extremely successful in the
Cape Town property market, has further increased the value proposition for buyers. For example,
buyers of Pepper Club units are guaranteed a mortgage rate of no higher than 10.5% for the first
two years and the apartments are then leased out by way of a rental pool with a projected return of either 8% or 12% p.a. for the first two years of ownership. The rental pool means all revenue is
shared between investors, guaranteeing that your revenue does not depend on the occupancy level of
your specific unit.
Solomon says investors in Pepper Club are also provided with some beneficial Income Tax allowances
which can be used to reduce one's tax liability on income from other sources. As the hotel falls
within a designated Urban Development Zone (UDZ), investors are offered a 55% tax incentive on the
purchase of individual units, which helps to reduce their taxable income and can also be carried
forward as an accumulated tax loss.
"There are a number of benefits to investing in a hotel - not least the guaranteed return for the
first two years and the tax incentives. This perfectly complements the needs of our
Johannesburg-based buyers who want to combine the investment potential of owning an apartment in a
5 star hotel with the regular fixture of sun, sea and sand that a holiday home in Cape Town
provides," says Solomon.
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