The Value-Added Tax Act 89 of 1991 (VAT Act) contains time of supply rules and specific provisions addressing the supply of certain goods and services in the event of a VAT rate increase. Below, we explain the impact of the VAT rate increase on property and property related transactions.

Residential property rentals

The supply of a dwelling to a person under an agreement for the letting and hiring thereof is exempt from VAT. Consequently, the VAT rate increase will not impact residential rentals, although utility charges such as water, electricity, sanitation and refuse removal charges will increase as a result of the VAT rate change.

Commercial property rentals

Section 67 of the VAT Act allows landlords to recover the additional VAT payable as a result of the VAT rate increase from tenants, unless the lease agreement stipulates otherwise.

Rental charges for periods of rental prior to 1 May 2025 are subject to VAT at 15%, while rental charges for periods commencing on or after 1 May 2025 will be subject to VAT at 15,5%. This applies irrespective of whether the lessor issues an invoice for the rental charges before or after 1 May 2025.

Where rental payable spans the effective date of 1 May 2025, the lessor is required to apportion the rental on a fair and reasonable basis between the period before 1 May 2025, and the period thereafter. The portion of the rental payable which is attributable to the period before 1 May 2025 will be subject to VAT at 15%, whereas the portion of the rental payable for the period thereafter will attract VAT at 15,5%. The lessor will be required to substantiate that the apportionment was done on a fair and reasonable basis.

Property rates

Property rates charged by municipalities to landlords are subject to VAT at the rate of 0%. However, when landlords recover these charges from tenants as part of the rental consideration for the use of commercial property, VAT applies at the standard rate. The same VAT rules applicable to commercial property rentals apply to property rates recovered from tenants.

Construction contracts

Where a construction contract in which the construction price is stated is concluded before 1 May 2025 for the construction of a new dwelling, the construction services will attract VAT at 15% irrespective of when the construction services are rendered or completed. A “dwelling” in this context means a building or structure which is used, or which is intended to be used, predominantly as the residence of a natural person.

Where construction services are performed or goods delivered in relation to properties other than the construction of new dwellings before 1 May 2025, such goods or services are subject to VAT at 15%. Charges for construction services performed or goods delivered on or after 1 May 2025 will be subject to VAT at 15,5%.

Where construction activities (other than in relation to a new dwelling) commence before, and end after 1 May 2025, the contractor is required to apportion the value of goods delivered and services performed on a fair and reasonable basis between the period before 1 May 2025 and the period thereafter. The portion of the consideration payable for construction supplies which is attributable to the period before 1 May 2025 will be subject to VAT at 15%, whereas the portion of the consideration payable for the construction supplies for the period thereafter will attract VAT at 15,5%.

Sale of residential property

The VAT Act provides for a concession for the sale of residential property by a vendor, covering various types of transactions. This includes the sale of a dwelling along with the land it is built on, any real right of occupation of a dwelling, sectional title units that constitute a dwelling, and shares in a share block company that provide a right to or interest in using a dwelling. Additionally, it applies to the sale of land intended primarily for the construction of a dwelling under a written agreement. If the sale agreement is signed before the VAT rate increase but transfer and payment occur after the increase, VAT remains payable at the rate of 15%.

Sale of commercial property

No special transitional rules apply to the sale of commercial property. The normal time of supply rules determine the applicable VAT rate. If the transfer registration and payment occur after 1 May 2025, the new VAT rate applies, regardless of when the sale agreement was concluded. The seller may recover the additional VAT payable as a result of the VAT rate increase from the purchaser unless the agreement states otherwise.

Commission

Estate agent commission is subject to the general VAT rules. If services are rendered and concluded before  1 May 2025, the rate of 15% VAT applies, regardless of when payment is received, or an invoice is issued. However, if the agent commenced performing services before 1 May 2025 and the services are only concluded thereafter, the value of the services must be apportioned fairly between the period before and after 1 May 2025. The value of services performed prior to 1 May 2025 will be subject to VAT at 15%, whereas the value of the services performed on or after 1 May 2025 will be subject to VAT at 15,5%.

Conveyancing fees

Conveyancing services involve multiple activities rendered over time. When services span the effective date of the VAT rate increase, the value of the services supplied must be apportioned fairly between the period before and after 1 May 2025. The value of services performed before 1 May 2025 is subject to 15% VAT, while services performed thereafter are subject to VAT at 15,5%. Conveyancers may recover from the purchaser any additional VAT payable due to the rate increase.