By Nangamso Mabindla
5 January 2005

MASSIVE investment is set to flow into the Quigney and surrounding areas following the gazetting of Buffalo City's Urban Development Zone - the Beach Development Agency - in December.

This means that commercial and private investors are now able to qualify for substantial tax deductions in terms of the Income Tax Act.

This, according to the Beach Development Agency's acting chief executive officer Peter King, is a feather in the City's cap and an enormous opportunity for growth, development and the transformation of the urban environment.

Buffalo City had earlier applied for the formal approval of the City's Urban Development Zone (UDZ) to the National Treasury.

Buffalo City is one of only seven municipalities to receive approval in a second round of applications, King points out. The first urban development zones to receive approval were those of Johannesburg and Cape Town, in October.

The Beach Development Agency aims to attract investment to the city's urban coastal zone and operates within Buffalo City's integrated plan for the area's long-term development.

Through the agency, the municipality aims to redevelop and revitalise major tourist attractions such as the East London beachfront, boosting the local economy.

"While I believe the market has been gearing itself up in anticipation of the approval, there is still considerable upside in the value of both commercial and residential properties in the demarcated area," according to King.

"There is no question that the viability of investments has been given a massive boost by this welcome initiative."

With the proclamation of the UDZ, Buffalo City is now well positioned to benefit from the present upswing in investor interest, particularly in the tourism and leisure sectors, King adds.

"We have a strong competitive advantage in that our approved UDZ is potentially a world-class coastal precinct, which means we will attract interest from a particular niche of domestic and international capital."

The tax breaks are not only applicable to the big commercial entities or properties, but also to smaller enterprises and private individuals. The only qualification is that the property in question be used solely for purposes of the investor's trade.

"The special incentive will not apply to the actual purchase price of a property, but applies to any additional capital used in further construction or refurbishment from the date of proclamation," King says. This includes all costs - other than finance costs - actually incurred in erecting or extending, adding to or improving a building.

"This implies that an owner-occupier of a private residence does not qualify for the tax incentive for that particular residence, but the same private individual who owns and rents out the property next door does qualify," says King.

For property refurbishment, including the refurbishment of office blocks, flats or hotels, 20 percent depreciation per annum will be allowed over five years. For new developments, 20 percent will be allowed in the first year, with five percent per annum for the subsequent 16 years.

The intention of the Treasury incentive, according to King, is to add value to the sunken capital of decaying areas in terms of existing buildings, rather than to encourage the large-scale removal of these buildings and their replacement with others. "This is why the incentive for refurbishment is so much greater than that for new construction."

According to King the municipality will soon be putting in place a mechanism to issue the necessary certification to investors that they need for their tax returns.