The continued rise of municipal rates in the South African Commercial Property sector is worrying property service companies, as it is exerting strain on business and the economy.
Briefing SA Commercial Prop News on Tuesday, the South African Property Owners Association (SAPOA) questioned the legality of increased municipal rates charged to its members.
Simultaneous increases in the Rates Factor and property valuations resulted in municipal rates levied on commercial property owner’s rocket in July this year.
SAPOA said its members have seen rates increase on average 23% for the year. Further, over the past 5 years members have complained about total rates increases of raging between 43% and 500% for the period
“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,” says SAPOA President Estienne de Klerk. “Further, property owners are providing various ’undelivered’ municipal services for themselves and their tenants via City Improvement Districts, at extra expense to the sector. The ongoing rates increases for commercial property simply make no sense.”
SAPOA represents around 1,200 companies and organisations. Its members control about 90% of all commercial, retail, office and industrial properties in SA to the value of approximately R300 billion.
It plans to consult municipalities on their basis of levying rates. It aims to gain insight into each municipality’s commercial property valuation basis, rates ratio level, budget approval process and confirm that rates are being reset annually. And, if any of this doesn’t comply with regulations, to help set it right.
According to the Constitution, municipalities cannot levy rates on property in a way that materially or unreasonably prejudices national economic policies, economic activities across its boundaries or the national mobility of goods, service, capital or labour.
It isn’t only property owners that find themselves in difficulty because their properties are becoming financially unsustainable as a result of these soaring costs. Rates are passed on to tenants of commercial properties, placing even more pressure on businesses which are becoming unsustainable and not renewing their lease agreements because they are forced to shut shop.
And SAPOA isn’t the only business organisation distressed about the impact of municipal rates increases. De Klerk reports that SAPOA has received letters of support from various other representative organisations across the economy. “These businesses have felt the brunt of the municipal rates increases over the past five years, in difficult trading conditions.” And these tough conditions are set to continue, exerting strain on business and the economy.
“We acknowledge that rates are necessary to fund municipal service delivery and outputs,” says de Klerk. “But they 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.”
De Klerk adds that SAPOA is concerned that this isn’t the case and, instead, municipalities are burdening commercial properties owners with inflated rates increases to make up for the inability of municipalities to collect the money owed to them.
“Many municipalities have large debtors’ books and have already written off substantial amounts. This already indicates there is room for vast improvement,” says de Klerk. “And, without being given a clear understanding of how municipalities are valuing properties, it makes it impossible to assess if they are being valued correctly and if the right amounts are being levied for rates.”
And it is this clarity that SAPOA is seeking. This week, it will begin sending letters to every municipality in South Africa, addressed to its mayor, city manager, head of rates and head of valuations, as part of its massive campaign to ensure rates are levied fairly and accurately to all owners of commercial property in South Africa.
It also aims to establish that municipalities are not discriminating against commercial property owners by charging them a higher rates ratio than residential property owners. The Rates Act is clear that this ratio for commercial property can be equal to, but never greater than, the rates ratio for residential property.
At the same time, SAPOA also intends to clarify if municipal rates increases are determined and allocated afresh every year and not merely lumped onto the previous year’s increased amount.
De Klerk explains concerns arisen about the implementation of the new Rates Bill which levies a rate in the Rand on the value of the property. The rate is reset annually to cater for inflation, but should be reset back to original levels once the properties are re-valued approximately every five years.
“If this isn’t done then inflation is being provided for twice, which results in super inflation for the property owner. This is unacceptable and we aim to ensure that municipal rates are being reset in each new valuation year,” explains de Klerk.
Also, a municipality must review a rate for each financial year. One of the procedural requirements for municipalities is the publication of the draft budget and inviting public comment. If the budget is approved, the rate is payable from the start of a municipality’s financial year. If not approved, it can only levy a rate for the date the budget is approved.
For each municipality, SAPOA seeks to ensure this procedure is followed correctly and that the rates levied correlate.
“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 de Klerk.