Rising municipal rates and taxes is a hot-button issue – one that negatively affects, not only operating costs and gross rentals, but also makes demand on property management resources.
“SAPOA members contribute significantly to the rates base, and we believe it to be in the interest of both ourselves and municipalities across SA to partner on this matter. As a sector, commercial and industrial property wants to contribute in a positive way towards the efficient functioning of municipalities” commented Chief Executive Officer Neil Gopal.
This is in response to a draft 2018/2019 budget tabled by the Buffalo City Metropolitan Municipality, indicating a 26.8% increase in income from property rates, more than four times that of inflation. This, according to Gopal, does not bode well for attracting further property investments into Buffalo City and has created a business unfriendly environment: “In terms of the tariff increase, although it is indicated in the draft budget that no increase is proposed, since the values of properties has increased from the previous valuation roll to the new valuation roll, the tariff should have reduced. If the revenue is considered, revenue increased from R1 121 175 to R1 421 961, indicating a 26.8% in property rates. This tariff should be re-considered,” he says.
SAPOA has been vocal in challenging the legality of increased municipal rates charged to its members. “Rising operating costs threaten the sustainability of net returns across the spectrum of commercial and industrial property investment. Since the sustainability of the property sector is a key focus for SAPOA, we have been vocal in challenging the basis and consistency of municipal rates charged to our members,” says Gopal.
The increases post 2007 have come in a much tougher macroeconomic environment with economic growth currently significantly lower than the preceding three to four years. Consequently, the tougher trading environment is making it increasingly challenging for landlords to deal with the additional tax burden.
“Not only is this unsustainable, but property owners pass these increases through to tenants, which has a material impact on the health of businesses in the economy.”
SAPOA acknowledges that rates are necessary to fund municipal service delivery and outputs, but these must be levied correctly. “Our Constitution and laws are clear that rates and taxes must be levied in a just and equitable way and this should be done by accurately determining the value of properties. SAPOA is committed to ensuring rates are being levied from a correct base, and not being overcharged. We believe this is essential to further an enabling environment for business and the commercial property sector in South Africa, and to help ensure the sustainability of our economy,” says Gopal.
“Property development activity is likely to be curtailed in favour of cities that are more conducive to property investment. We appeal to the Buffalo City Municipality to re-consider tariff increases for 2019/20 and 2020/21” concludes Gopal.
SAPOA has appointed its team of consultants, Rates Watch, to monitor property rates charges and comment on the revaluation.