The South African Property Owners Association (Sapoa) says that the increases in municipal rates and taxes which are being proposed in 2023 are based off of often bizarre valuations and are completely unsustainable.
Property owners cannot fathom how they can be expected to pay these exorbitant costs while municipal service delivery has degraded especially in large municipalities like those in Gauteng and KwaZulu-Natal.
Each four or five years, a new municipal roll is released and property owners receive valuations from municipalities. This is on top of annual municipal cost hikes. In the past 10 years, Joburg rates have increased by about 11% each year.
While homeowners are often shocked to see that a municipality thinks their house is worth 40% more than it was a a few years ago which means they suddenly have to fork out thousands more in levies. It’s somewhat more dire for a landlord that owns a shopping centre to value the asset at R750m and then suddenly find that the centre is worth R1.1bn according to a municipality.
If we look to Johannesburg for example, landlords there who collectively own R1.5-trillion in commercial and residential property are fearing the tariff hikes that they will have to bear when the new municipal valuation roll is implemented for July 1 2023.
These owners of offices, malls and warehouses get irate about the wild increases in the tariffs. Some landlords are unlikely to invest in South Africa in the near term as a result, rather looking to take their money offshore.
Johannesburg’s new cents-in-the-rand tariff that monthly rates bills are based on will be announced after its budget in April.
The great concern is that the cents-in-the-rand rate levied on commercial property landlords is normally two times higher than that levied on homeowners.
The result will be that the companies where our pensions are invested will have to face exorbitant costs to municipalities this year. Real estate investment trusts (Reits) listed on the JSE attract hundreds of millions in pension money from fund managers, in exchange share price and dividend ever year. Each Reit is supposed to pay at least 75% of its distributable income as a dividend each financial year.
Liberty Two Degrees (L2D) parts of premium malls like Eastgate, Melrose Arch, Nelson Mandela Square and Sandton City. In a recent interview with Property Flash, L2D’s CEO Amelia Beattie explained that the company had lost a rates appeal case which dragged on for years. The appeal was against how Sandton City was valued by its municipality up close to 80% in 2018 from R5.8bn to R10.1bn.
Beattie believed the mega mall was more likely to be worth R7.9bn. It means L2D has to pay tens of millions of rand in rates on Sandton.
“Now we will pay rates on an asset at an unrealistic valuation for years to come. It is highly frustrating,” Beattie says.
The company previously won an appeal around the valuation of Eastgate Shopping Mall but it is disputing the valuation of Nelson Mandela Square shopping centre.
Next week, the largest landlord in South Africa, Growthpoint Properties will release its financial results for the months to end-December. Property Flash expects Growthpoint’s management team to detail its concerns over unsustainable rate hikes.
Last year the City of Johannesburg added a levy on developers who apply for rezoning and bulk services approval.
While private landlords can keep the value of its properties under wraps in general, listed funds have to reveal some kind of valuation for each building in their public financial statements.
Sapoa CEO Neil Gopal said at a recent media lunch that Sapoa would lobby the state to finetune how it values properties and how it charges municipal costs.
Sapoa used Oxford Economics, the thinktank and research group to analyse the municipal rates problem in the country.