The South African Property Owners Association (Sapoa) has compared the level of rates and taxes levied in each of the eight metropolitan municipalities of the country – comparison reveals some variance in the rand rate across the main property types.
The Sapoa rates and taxes research highlights the huge disparity between the country’s major cities in terms of the resources available to deal effectively with ongoing urbanisation, poverty, unemployment and inequality, the association explains.
It points out that, in the context of the National Development Plan’s emphasis on major cities being the engines of economic growth, the disparities and the shortcomings revealed need to be addressed as a matter of urgency.
The association points out that the research also confirms that, over the last decade, rates and taxes have consistently increased at a rate higher than inflation, with a rates and taxes annualised rate of inflation of 8.2% over the period 2005 to 2014. Prior to this, the increase in rates and taxes exceeded inflation, but the acceleration in rate increases has been more noticeable since 2005.
From a rates randage perspective, for the fiscal year 2014/15, the highest level of commercial property rate randage was levied in the eThekwini municipality, where a rate of 3.053c in the rand applied to industrial property. Commercial and business property saw a slightly lower tariff of 2.36c in the rand being applied.
It explains that the City of Tshwane reported the second-highest rate, with industrial and business property both taxed at 2.71c The lowest rates applied to the City of Cape Town, with both industrial and commercial property taxed at 1.25c in the rand.
The largest municipality in terms of revenue, the City of Johannesburg, applied a rate of 1.73c in the rand, while Nelson Mandela Bay, Buffalo City and Mangaung, the three smaller metros, had comparatively high commercial property rate randages.
The association notes that the rate randages do not necessarily result in higher property rates, as this is predominantly affected by the actual property value. The case of the eThekwini municipality is therefore instructive.
Sapoa explains that, while the eThekwini municipality’s rate randages are the highest, the number of rateable properties is more than 60% less than both Cape Town and Johannesburg and the value of commercial and industrial properties is more than half that of Johannesburg and nearly half that of Cape Town.
This can be seen with eThekwini having the least quantum of rates revenue of the three major cities. Further, within eThekwini, more than 90% of the total rateable property is residential resulting in a major challenge for the municipality.
The net effect is therefore a higher rate randage than in the other major cities, but not necessarily higher property rates. However, within every municipality, rates revenue is a critical source of revenue and, within eThekwini, its challenges force it to rely heavily on such revenue.
eThekwini municipality mayor James Nxumalo says a large portion of the municipality’s R6.1-billion capital budget will be pumped into low-cost housing and infrastructure development throughout the city towards creating an enabling environment for new investments and other activities that lead to job creation.
He explains that the municipality has a commitment to building a sustainable city for future generations based on infrastructure-led growth, unlocking investment, economic development and job creation. Investments include more than 65 flagship projects across the city, ranging from manufacturing, construction, real estate, tourism, information and communication technology, agriculture, maritime and logistics.
The projects are expected to create about 680 000 permanent jobs in the long-term and potential revenue of about R9-billion for the city. Nxumalo says that the municipality has established a project management office whose main role is the facilitation of the implementation of catalytic projects such as the inner-city renewal, in addition to building capacity.
He points out that, in drafting the tariff increases, the city took cognisance of economic conditions, input costs and the affordability of services to ensure the financial sustainability of the city. Rates and taxes form a significant percentage of overall municipal revenues, with the eight metro municipalities collecting R29-billion in rates and taxes, 17.9% of total revenue.
During the 2013/14 fiscal year, commercial and industrial property rates billings amounted to 54.5% of overall rates revenue in the country’s metropolitan municipalities, with significantly lower levels of arrears than commercial clients.
Sapoa explains that, of the eight metro municipalities, six reported increases of 30%-plus in the value of commercial and industrial properties. Mangaung reported the largest increase in the value of commercial properties, while eThekwini reported a municipal valuation increase of 50%. Tshwane and Buffalo City were the only municipalities with a valuation increase close to inflation – 5.6% and 4.7% respectively.
The company concludes that the increase in rates and taxes comes at a time of a much tougher macroeconomic environment, with economic growth currently at levels of around half that of the period 2004 to 2007. As a result of this tougher trading environment, it is becoming increasingly challenging for landlords to deal with the additional tax burden.