The new tax breaks introduced by government to encourage investment in the inner cities of Johannesburg and Cape Town will appeal more to larger investors, says Neville Schaefer, CEO of residential property managers Trafalgar.

Schaefer says he believes most of the development that will be stimulated by the tax breaks will be commercial redevelopments. However, Schaefer says, the move will also encourage the conversion of office blocks into residential units.

"These tax incentives are very attractive and I think they will have a major effect on the rehabilitation of cities," he says.

Li Pernegger, programme manager for area regeneration within the finance and economic development department of the City of Johannesburg, says there has been a lot of interest and investment in the inner city of Johannesburg, but that this has been patchy.

"We are hoping that with this incentive scheme we can encourage investment more evenly across the inner city in areas that have up to now missed investors' eyes," Pernegger says.

Japie Hugo, director of planning and environment for the City of Cape Town, says the tax incentive scheme is a good example of how different spheres of government are working together to implement government's strategies for urban regeneration.

Gerald Olitzki, proprietor of Olitzki Property Holdings and an investor in the Johannesburg inner city, says that while the tax incentive is great news for property owners in the central business district, it also has a positive spin-off in that it creates the opportunity to improve the city for the poorer sections of the community.

Olitzki says there is already a strong trend of businesses moving back into the central business district and the tax incentive scheme will help in this regard.

The Cape Town Partnership, a public-private sector partnership focused on rejuvenating the inner city of Cape Town, also welcomed the tax incentive scheme.

CE Andrew Boraine, says it is "very significant" that national government is recognising the need to stimulate the renewal of major inner-city areas in SA.

"For the past five years, the partnership has spent an enormous amount of time and effort together with the public and private sectors in renewal efforts in Cape Town's central city.

"We have been successful in attracting well over R6bn in investment over the period, and believe that this pace of spending will now accelerate given the new tax breaks," says Boraine.

He says it will allow parts of the city that have not enjoyed the same level of investment to claim their share of the renewal spend.

This applies more specifically to the eastern part of the central city, which has not experienced the same degree of private-sector spending on upgrades as the historic core and the foreshore.

Property economist Erwin Rode says local authorities should not see the tax break as a "single event" it must form part of a package to rejuvenate the specific areas in the urban development zones.

The tax allowances are a major component of any rejuvenation strategy but in and of themselves will not be enough, says Rode.

"You only have the benefit when you make a profit."

Rode says it is important to have a package that includes integrated planning and the repositioning of the areas.

The new urban renewal tax incentives were announced by the national treasury last Thursday.

In February last year government proposed R1,3bn in tax relief over four years to encourage urban development.

On offer is a 20% tax deduction from all income earned in the first five years after a building has been refurbished.

For new developments, government is offering a tax deduction of 20% in the first year in which the building starts earning an income, along with an annual depreciation of 5% for the following 16 years.

The Johannesburg urban development zone, for which the tax break is applicable, includes the central business district, Newtown and Braamfontein, as well as the high-density and high-rise residential areas of Hillbrow and Berea.

Other lower-density residential areas surrounding the general Ellis Park area such as Bertrams, Judith's Paarl, Doornfontein and Troyeville, as well as Bellevue, Bellevue East and Yeoville also form part of the approved urban development zone.