On the rise: the real estate industry feels the heat from municipal rates and tariff hikes
The real estate industry will be bracing itself as new property rates for South Africa’s major cities come into effect from 1 July 2023. These changes come following the general valuation roll (GVR), conducted every four years to update property values.
The news of these increases brings little respite for residential and commercial property owners and tenants alike. The above-inflation surge in municipal rates and tariffs adds an extra burden to an already strained property market and further tightens the squeeze on people's wallets. And with that, local property practitioners will also find their livelihoods impacted. Prop Data polled local practitioners to find out their thoughts on the situation.
Unpacking the poll results
In April 2023, Prop Data polled property practitioners to find out whether municipal rates and tariff hikes will impact their livelihood. The results found:
89% say it will impact their livelihood.
6% say it won’t impact their livelihood.
5% say it might impact their livelihood.
According to Sandy Geffen, Executive Director at Lew Geffen Sotheby's International Realty, the results are unsurprising. “All businesses in South Africa are suffering from interest rate hikes and increased operational costs caused by load shedding. The municipal rates and tariff hikes, which directly impact the property industry, will also have an impact on practitioners.”
Property industry impact
Municipal rates play an important role in providing services, including sewerage facilities, road maintenance, street light maintenance, and refuse collection. However, over the years, these rates have seen above-inflation increases. According to the South African Property Owners Association (SAPOA), these increases have slowed the economies in five major metropolitan areas — the City of Johannesburg, City of Tshwane, City of eThekwini, City of Cape Town, and City of Nelson Mandela Bay. The association says rates have increased more than 10% per annum. Water and property rates prices have increased 140% between 2010 and 2021, almost double the rise in inflation.
Growthpoint Properties CEO Estienne de Klerk points out these soaring municipal rates have increased rentals for tenants, driven up the cost of doing business in the country, and eroded the returns of property owners. By raising tenant costs in an already challenging economic climate, rising municipal rates have the potential to result in more business failures, higher vacancies, and decreased investment, he says.
Ulana van Biljon, Emira Property Fund’s chief operating officer, also notes that rates collected are not being channelled into infrastructure and maintenance spend. She believes that long-term property ownership will be driven elsewhere if the ultimate costs of occupation continue to become less and less affordable.
According to Geffen, the increases have put pressure on property practitioners as buyers have become specific about their needs. “They are not prepared to overpay, scrutinising each purchase to find good value for their money in an area that delivers. Adding to this is that bond rates have been impacted by the interest rate hikes, making buyers careful with where they choose to put down roots.”
What practitioners can do
On a macro level, real estate businesses can support associations like SAPOA that are engaging with municipalities and communicating the industry’s concerns. The association has addressed correspondence to the relevant municipalities, the South African Local Government Association, the Minister of Finance, and the Minister of Co-operative Governance and Traditional Affairs.
On a micro level, Geffen says property practitioners should put in the effort to assist buyers and showcase what properties have to offer. “Properties you list on the market should have real reasons for selling and the CMA must be comparative with other sales in the area. Work hard to look after your buyers, make sure you mandate specifically, and give super service at all times.”