Urban Development Zone Incentive

In the wake of the 2025/26 Budget Speech, South Africa's property sector has much to celebrate. The Urban Development Zones (UDZs) as well as adjustments to the transfer duty tables are significant tax incentive benefits available to companies and individuals in South Africa, aimed at promoting urban renewal and development and property investment. This article explores the positive impacts of these measures to the property sector and highlights Treasury's efforts to bolster the market, even amidst the contentious Expropriation Act No. 13 of 2024. 

UDZ Incentives: A historical Overview 

The UDZ legislation was first introduced in 2003 under section 13quat of the Income Tax Act No. 58 of 1962 (“the IT Act”). This initiative was part of the government's broader strategy to address urban decay and stimulate investment in inner-city areas. Since its promulgation date, the incentive has undergone several extensions, with the most recent extension announced in the 2025/26 Budget Review, prolonging its availability until 31 March 2030. The UDZ tax incentive allows for accelerated depreciation on the costs of buildings within designated zones. For entirely new commercial or residential buildings, investors can claim an accelerated depreciation allowance of 20% of the building cost in the first year, followed by 8% per year over the next ten years. Improvements to existing buildings are eligible for a 20% allowance in the first year and 20% per year for the subsequent four years. In instances where the building or part of a building is purchased directly from a developer, the allowance is available to the purchaser. This extension underscores the government's dedication to maintaining and enhancing urban infrastructure, making it an attractive proposition for property developers and investors. 

The incentive has had a profound impact on the property market in South Africa which is witnessed through the increased attractiveness of inner-city properties for developers and investors which has encouraged the refurbishment and development of commercial and residential buildings. This in turn supports the creation of affordable housing units and greatly contributes to the revitalisation of previously neglected urban areas. 

Contrasting UDZ Incentives with the Expropriation Act 

While the Expropriation Act has sparked debate and concern within the property sector, it is important to recognize the contrasting support from Treasury. The Act, which allows for the expropriation of land in the public interest, has raised fears of potential negative impacts on property rights and market stability. However, Treasury's continued backing of UDZ incentives highlights a balanced approach to property sector regulation. This dual approach reflects a balanced strategy to address historical injustices while fostering economic growth and urban renewal. 

The UDZ's Role in Shaping Urban Landscapes 

The 2025/26 Budget should provide optimism for South Africa's property sector. The extension of UDZ incentives, by five years to 31 March 2030, and Treasury's unwavering support for infrastructure development paint a promising picture for the future. Despite the complexities introduced by the Expropriation Act, the continued support for the UDZ incentive highlights Treasury's commitment to fostering a vibrant and competitive property sector. 

Inflation Adjustments in Transfer Duty: Effects on Property Transactions 

Transfer Duty is a tax levied on the value of any property acquired by any person by way of a transaction or in any other way. For the purpose of Transfer Duty, property means land and fixtures and includes real rights in land, rights to minerals, a share or interest in a “residential property company” or a share in a share-block company. 

As part of the periodic reviews of monetary property values in the Transfer Duty tax tables, the monetary property thresholds for transfer duty determination will be adjusted upwards by 10 per cent to compensate for inflation. The transfer duty tax rates will remain unchanged.  

For a first-time buyer, which buys a property of R1,5 million the savings will be R3 300. On a purchase price of R2 million, a buyer will now pay R7 839 less transfer duty. The 2025/26 Budget Proposed budget reveals a clear intention from Treasury to support the property sector.  

The pre-and post-adjusted Transfer Duty Tables are illustrated below: 

Closing Thoughts: UDZs and Transfer Duty 

The government's continued support for UDZs and inflationary adjustments to the transfer duty thresholds signals a robust commitment to revitalizing urban areas and fostering economic growth.

Authors:

Khumo Appies, Consultant; Lesego Masilo, Consultant; Mike Teuchert, Partner.