The South African Property Owners Association’s (SAPOA) comparison of the level of rates and taxes levied in each of the eight metropolitan municipalities reveals some variance in the cents in the rand rate across the main property types.
The latest rates and taxes research from SAPOA highlights the huge disparity between the country’s major cities in terms of the resources available to deal effectively with ongoing urbanisation, poverty, unemployment and inequality. Within the context of the National Development Plan’s emphasis on the major cities being the engines of economic growth, these disparities and the shortcomings they reveal, need to be addressed as a matter of urgency.
The research also confirms that over the last decade, rates and taxes have consistently increased at a rate higher than inflation with a rates and taxes annualised rate of inflation of +8.2% over the period of 2005 – 2014.
Although prior to this, the increase in rates and taxes exceeded inflation, the acceleration in growth rate has been more noticeable since 2005.
From solely a rates randage perspective, for the fiscal year of 2014/2015, the highest level of commercial property rate randage was levied in the eThekwini Municipality where a rate of 3.053 cents in the rand applied to industrial property. Commercial and business property saw a slightly lower tariff of 2.36 cents in the rand being applied.
The City of Tshwane reported the second highest cents in the rand rate with industrial and business property both taxed at 2.71. The lowest rates applied to the City of Cape Town with both industrial and commercial property taxed at 1.25 cents in the rand.
The largest municipality in terms of revenue, the City of Joburg, applied a rate of 1.73 cents in the rand while Nelson Mandela Bay, Buffalo City and Mangaung, the three smaller metros had comparatively high commercial property rate randages.
It is noted however that the rate randages do not necessarily result in higher property rates as this is predominantly affected by the actual property value. The case of the eThekwini Municipality is therefore instructive.
Whilst the eThekwini Municipality’s rate randages come out as the highest, the number of rateable properties is more than 60% less than both Cape Town and Johannesburg and the value of commercial and industrial properties is more than half that of Johannesburg and nearly half that of Cape Town.
This can be seen with eThekwini having the least quantum of rates revenue of the 3 major cities. Furthermore, within eThekwini, more than 90% of the total rateable property is residential resulting in a major challenge for the municipality.
The nett effect is therefore a higher rate randage than in the other major cities, but not necessarily higher property rates. Certainly however, within every municipality, rates revenue is a critical source of revenue and within eThekwini, its huge challenges force it to rely heavily on such revenue.
Presenting the highlights of the city’s budget, eThekwini Municipality Mayor, James Nxumalo, said a large portion of the Municipality’s R6.1 billion capital budget will be pumped into low-cost housing and infrastructure development throughout the City towards creating an enabling environment for new investments and other activities that lead to job creation.
Mayor Nxumalo confirmed the city’s commitment to building a sustainable City for future generations based on infrastructure-led growth, unlocking investment, economic development and job creation. Investments include more than 65 flagship projects across the city ranging from manufacturing, construction, real estate, tourism, information communication technology, agriculture, maritime and logistics. The projects are expected to create about 680 000 permanent jobs in the long-term and the potential revenue of about R 9 billion for the city.
The Municipality has established a project management office whose main role is the facilitation of the implementation of catalytic projects such as the inner city renewal in addition building capacity.
Nxumalo said that in drafting the tariff increases, the City took cognisance of economic conditions, input costs and the affordability of services to ensure the financial sustainability of the city.
Rates and taxes form a significant percentage of overall municipal revenues with the eight metro municipalities collecting R29bn in rates and taxes, 17.9% of total revenue.
During the 2013/2014 fiscal, commercial and industrial property rates billings amounted to 54.5% of overall rates revenue in the country’s metropolitan municipalities with significantly lower levels of arrears than commercial clients.
Of the 8 metro municipalities, 6 reported increases of 30% + in the value of commercial and industrial properties. Mangaung reported the largest increase with the valuation of its commercial property almost increasing while eThekwini reported a municipal valuation increase of 50%. Tshwane and Buffalo city were the only municipalities with a valuation increase close to inflation with 5.6% and 4.7 respectively.
In conclusion, the increase in rates and taxes comes at a much tougher macroeconomic environment with economic growth currently at levels of around half of that of the period 2004-2007. As a result of this tougher trading environment, it is becoming increasingly challenging for landlords to deal with the additional tax burden.