Owners face steep increases in property rates

THE increases in municipal rates and tariffs are putting immense pressure on property owners and tenants, with little relief in sight. These above-inflation increases, which industry players say are likely to continue, place a further strain on the property market and people’s pockets.

According to recent commercial property finance insights from banking group FNB, rates and tariffs are hitting harder than usual this year due to longterm economic stagnation.

FNB expects national property values will be adjusted upwards, prompting businesses to migrate in search of better deals.

The rising costs of electricity, water utilities and more will push companies and residents to reconsider properties based on the associated rates and tariffs, it said. FNB also noted property taxation costs have nearly doubled since 2007, from 5.12% in that year to 10.35% in 2021.

“As a result, rates and tariffs are becoming more important for both landlords and tenants, with the quality of municipal and utility services received in return also playing a significant role,” the report stated.

FNB also predicted it was unlikely there would be any reprieve for property owners in the near term.

The South African Property Owners Association (Sapoa) said the proposed hikes in municipal rates and taxes for this year were often based on bizarre valuations, and were completely unsustainable. At a recent media event, Sapoa chief executive Neil Gopal said the organisation would lobby local government to streamline the methodology used to valuate property, and the associated charges.

Sapoa had compiled a report together with independent advisory firm Oxford Economics that analysed the problem. This would be released soon.

Meanwhile, the valuation process continues, with many new general valuation rolls now open. Others expected later this year include Buffalo City, Mbombela and George.

According to watchdog organisation Rates Watch, general valuation rolls are compiled by the respective municipalities every three to seven years. The market value of all the properties in the municipal area is determined at the date of valuation, which in turn determines the rates and taxes a property owner is liable for during the subsequent few years.

It advised that according to the law, there should be no discrepancy between a municipal property valuation and a property’s actual market price, but said in many cases there were. A failure to object to these discrepancies would not only affect property owners rates and taxes, but could also affect future sales values.

The City of Joburg said its property base has increased to more than R1.5trillion in the 2023 Valuation Roll, from more than R1.4trillion in 2018, when the previous valuation was conducted. This was an increase of about 12%. The new roll would be implemented from July 1 this year, it said.

The City of Cape Town is also looking at changes to rates and taxes this year, with the city warning property owners to check the value of their properties.

The municipal valuations roll opened for public inspection on February 21 this year. It said the new rates would be applied from July 1. If residents were not happy with their valuations, there was a 60-day objection period from February 21 to April 30.

Advocacy group Outa said property owners should brace themselves for a potentially nasty surprise on their municipal bills in the form of increased property taxes.

“In 2021, thousands of property owners in Ekurhuleni were caught off guard with property taxes, which were increased by as much as 2000% in some cases,” it said.

“That’s right, a residential property worth R1million could now be worth R20million, resulting in a whopping R14114 per month as the new rates bill from the City of Ekurhuleni. This excludes the annual inflation-related increases on top of this over the following years.”

The organisation said it was crucial to check if the municipality’s estimated value for a property was accurate.

“If you find that your property's updated value is irrational and believe you can prove it, dispute the valuation and proposed rate,” said Outa.

“It is extremely important to do this within the short time frame that the municipality gives for this because if you don’t, it will most likely be too late when you see the new rates on your municipal bill.

"In 2021, some 42 000 property owners objected to the valuation roll of the Ekurhuleni metro, saving a lot of them thousands of rands. So make sure you register your objection in time.”

Estate agency Harcourts chief executive Richard Gray said: “In this challenging economic and property rental market, rates and tariffs are becoming more important, and the quality of municipal and utility services received in return is playing a significant role in the decision-making process.”

Gray advised property owners to participate in the municipal valuation roll currently being conducted across the country.

“Participating in the municipal valuation roll is crucial for property owners to ensure that their properties are accurately valued, and that they are not overburdened with excessive rates and taxes.

“It is important for property owners to be proactive and engage with their municipalities to protect their investments.”

Unfortunately, it doesn’t always go the right way. Sandton City recently lost its five-year battle against the City of Joburg’s rates proposal, which the owner of the shopping centre Liberty Two Degrees (L2D) believes were unsustainable. L2D, which also owns Nelson Mandela Square, the Sandton Convention Centre and three hotels in Sandton, said it would now pay more than R100 a square metre because of the unsuccessful rates appeal.

Sapoa’s report for the six months to June, which tracks property costs, including water and electricity, found such charges already consumed 42% of the rental income that real estate landlords generated.

Estienne de Klerk, SA chief executive of Growthpoint Properties, spoke out about high rate increases that municipalities imposed on property owners during a presentation of the group’s half-year results earlier this week. He said that over the past 15 years, the industry had seen an average rate escalation of more than 15%.