SAPOA 2017 Rates and Taxes Report

Key findings:

  • Over the last decade, rates and taxes have consistently increased at a faster rate than inflation, increasingly coming under the microscope as landlords focus on preserving their net income in a challenging trading environment.
  • Over the period 2005 – 2016, rates and taxes grew at an annualised rate of inflation +8.2% equating to a compound annual growth rate of 12.1% in nominal terms.
  • 2016 saw a large increase to bring the 3 year CAGR back up to 7.6%.
  • Given its above inflation-growth and its higher growth relative to other operating costs, rates and taxes have increased as a % of total operating costs over time.
  • In 2005, rates and taxes worked out to 17.3% of total operating costs – by the end of 2016, this had escalated to 22.8%.
  • For the year ending December 2016, rates and taxes grew by 22.0% on a per square meter basis.
  • On a weighted basis, rates and taxes remain the second largest contributor to total operating costs – behind electricity.
  • History has shown that rates and taxes tend to move in line with property capital values over the long term with multi-year lags in the short term as municipal valuations are generally slow to move given the processes involved.
  • An analysis of rates and taxes relative to commercial property valuations, highlights the significant variance between values of a similar type and capital value.
  • The strength of the relationship between commercial property values relative and annual municipal rates and taxes, can be described as ‘moderate’ for 2016.
  • The analysis produced an R2.00 of 0.44- meaning that the property capital value only explains 44% of rates and taxes values – the balance of the equation can likely be explained by variances in ‘cents and in rand’ tariffs per municipality as well as the landlords contesting their municipal valuations.
  • On a property segment level, rates and taxes equates to 7.8% of gross income, R11.3/sqm and around 1.0% of capital value.
  • However, there are visible variances on a provincial level, arguably driven by different ‘cents in the rands’ rates, timing of the respective general valuation rolls and municipal valuation accuracy relative to actual valuation.

Read more here: SAPOA 2017 Rates and Taxes Report