Research

SAPOA Rates & Taxes Report (November 2019)

Key findings:

  • As at June 2019, rates and taxes were the fastest growing property operating costs category since 2009 – exceeding the growth of electricity costs and other municipal charges such as water, sewerage and refuse collection.
  • For the ten and a half year period ended June 2019, rates and taxes increased by 147% – translating into a compound annual growth of 8.6% versus the 8.1% of electricity over the same period.
  • This has seen rates and taxes become a significant contributor to the overall basket of operating costs.
  • In 2005, rates and taxes accounted for 17.3% of total operating costs and by June 2019, this had escalated to 25.2%.
  • On an inflation-adjusted basis, property rates and taxes have doubled from 2005 to 2019H1.
  • For all three major property sectors, rates and taxes now account for well over 20% of total operating costs. For the office sector, rates and taxes accounted for 26.4% of total operating costs as at the end of June 2019 (26.2% and 22.5% for retail and industrial respectively).
  • On a per square meter basis, rates and taxes increased by 84 cents in the six months to June 2019. This comes after the R2.84 increase in the year to December 2018.
  • The data suggests that the recovery of rates may be reaching a ceiling as the recovery of rates seen as a percentage of the rates expense has started to stabilize – and even decline in the case of retail.
  • When viewed as a percentage of total income, rates and taxes increased by 120bps on an ‘all property’ level for the eighteen months ended June 2019. The six months leading up to June 2019 saw the overall ratio remain stable but there were some changes in the underlying sectors.
  • Property rates for the retail sector are at a high relative to total income having increased at a consistently faster rate.
  • There is a significant variance in the level of rates and taxes at a percentage of total income between the various property segments.
  • As at June 2019, the ratio for super regional centres was 12.5% – down 20bps on December 2018 but significantly up from 2016’s level of 9.5% as slowing consumer confidence and disposable income growth put the brakes on rental growth.
  • An interesting find from the analyses is how the rates to total income ratio declines for larger office and industrial properties but increases for larger retail assets.
  • This suggests that larger retail assets are subjected to higher rates relative to their total income notwithstanding their higher base rental and operating cost recoveries.

Read the full report here: