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Municipalities waste billions in irregular expenditure while property owners are forced to cover the shortfall

By Neil Gopal, CEO of the South African Property Owners Association (SAPOA)

Municipalities waste billions in irregular expenditure while property owners are exploitatively forced to cover the shortfall through exorbitant rate increases.

While South Africa grapples under the effects of Covid-19 and the corruption that has resulted, municipalities have recorded unexplained losses in the billions while others failed to submit financials for auditing purposes.

Briefing parliament on her office’s annual probe into local municipalities, Auditor-General Tsakane Maluleke reported that South Africa’s municipalities had spent R26 billion irregularly in the 2019/2020 financial year and most have not instituted any control and preventative measures against officials for the maladministration.

With only 10.5% of the country’s 257 municipalities receiving clean audits, it is evident that the financial situation in our municipalities is dire, with a lack of accountability rampant among officials.

Meanwhile, property owners are on the receiving end of the consequences of this extensive maladministration and widespread corruption. To mitigate the cost of unexplained and irregular expenditure, municipalities institute exploitative tariff increases which property owners are compelled to absorb and risk the long-term sustainability and profitability of their investments.

In addition, the City of Johannesburg plans to take over electricity distribution in part of Eskom, a move seemingly orchestrated to benefit the City while being highly detrimental to property owners as it will likely lead to heavily increased tariffs.

The AG’s revelation that no one can account for R5.5 billion at the country’s worst run municipality is a clear indication that the roots of corruption run deep, especially considering that some municipalities fail to submit financials for auditing purposes, therefore leaving a financial reporting vacuum” comments South African Property Owners Association (SAPOA) CEO, Neil Gopal.

Most concerning is that the chaos in these municipalities is filtering at exponential speeds into the pockets of already strained property owners who are expected to empty their bank accounts to keep municipalities afloat through unjustifiable tariff hikes in property rates, water, refuse removal, and electricity among others”.

The latest tariff increased in the City of Johannesburg range from 14.59% for electricity, which is far above acceptable, particularly in the current economic climate says Gopal. However, the City’s mayoral committee on finance’s councillor Jolidee Matonga expressed that many factors considered when deciding on the tariff increases was the economy of the country and the impact of the pandemic. Yet, at 14.59% for electricity, 6.8% for water and sanitation, and 4.3% for refuse, the effects of the pandemic have undeniably not been adequately considered or addressed.

It is exploitative to expect property owners to carry the burden of servicing municipal budget shortages spurred on by corrupt activities and mismanagement. The increasing tariffs, which are supposed to be reduced with new GV rolls but are not, are now unsustainable and businesses are shutting down as property owners’ expenses are starting to exceed their income” says Gopal.

This is an extremely dangerous situation – not only for the property owners but also for the municipality as it cannot be sustainable on a long-term basis. To protect their businesses, property owners should challenge these exorbitant tariff hikes and disinvest in badly run municipalities”.

I also call on local and international investors to carefully consider their investment strategies. Developers who have plans to develop further will likely suffer severe consequences as the local landscape no longer inspires business confidence as corruption and maladministration go unchallenged in our municipalities. Investors will be best placed to reconsider their plans” Gopal concludes.

Disclaimer: the views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Property Wheel.