Commercial property owners to tackle municipal rates

I found this article to be fascinating, not because there is anything earth shatteringly new that is revealed but because it coincides with a dinner I attended last night with the President of SAPOA (Mr. Estienne de Klerk, who is quoted extensively in the article) and the Mayor of the City of Joburg.

It was an awesome SAPOA event and included many prominent people from the property industry and several top City of Joburg officials, including the Municipal Manager and a number of MMC's.

Mayor Parks Tau spoke very eloquently and his vision for the future of the city was extremely impressive.  The Mayor mentioned that progress toward a future vision should not be undertaken at the expense of glossing over current issues.

There are obviously dire backlogs in the planning department and the billing system (including Clearance Certificates) is an ongoing problem.  These issues were not specifically discussed at the function BUT there does seem to be a new spirit of co-operation between the City of Joburg and SAPOA.  Hopefully this "friendship" between SAPOA and the City (remember that not so long ago the two were fighting an Appeal in Bloemfontein) will yield better results for all.

Gareth Shepperson

Commercial property owners to tackle municipal rates

Commercial property owners are poised to challenge the major urban municipalities over the high increases in municipal rates, which they believe are unsustainable.

Estienne de Klerk, the president of the SA Property Owners Association (Sapoa), said yesterday that it would question the legality of these increased municipal rates. He said if Sapoa did not get a satisfactory response from municipalities, it would approach the local government minister, or even the finance minister.

'Challenging municipalities in court will be our last resort. We have always had a collaborative approach with government and will try to resolve these things out of court.'
De Klerk said simultaneous increases in the rates factor and in property values had resulted in municipal rates on commercial properties rocketing in July, with increases for Sapoa members averaging 23 percent for the year.

Sapoa members had complained about total rates increases over the past five years that ranged between 43 percent and 500 percent. 'Not only is this unsustainable and devastating to the commercial real estate sector, but property owners pass these increases to tenants, which has a material impact on the health of businesses in the economy. The reality is it's having an economic impact.'

Sapoa planned to consult municipalities on the basis on which they levied rates and help set right any aspects that did not comply with the regulations. He said it had launched a 'Meet the Mayor' initiative in terms of which a delegation of Sapoa members would meet the mayors of major urban municipalities and their executives to discuss this issue.

The association had had a meeting with the City of Cape Town and would meet the City of Joburg this week. It would probably have meetings with the eThekwini and Tshwane metros early next year.

De Klerk said the problem was caused specifically by the way in which municipalities implemented the Rates Act. The rate in the rand was adjusted to keep up with inflation because properties could not be valued every year. But municipalities did not reset the rate in the rand to the original rate when a new valuation roll was published.

This meant commercial property owners had to pay increased rates because of the higher valuation of their properties and the escalated rate at which rates were levied, he said.

This resulted in 'superinflation' for property owners, because inflation was provided for twice. 'This is unacceptable and we aim to ensure that municipal rates are being reset in each new valuation year.'

Property owners were also providing various 'undelivered' municipal services for themselves and their tenants via city improvement districts (CIDs) - at extra expense.

He cited the example of Sandton, where property owners, through the CID, ensured the streets were cleaned. This meant they were paying for a service for which they had already paid via their rates. In this context, the ongoing rates increases for commercial property did not make sense.

De Klerk said the high rates increases ate into the rental that tenants could afford and affected the feasibility of property investments. High rates increases penalised landlords who invested in their properties, because poorly manage properties had a lower value and paid less in rates.

Sapoa was also concerned that councils were burdening commercial property owners with inflated rates increases to make up for the inability of municipalities to collect the money owed to them. The association had evidence that municipalities had been charging commercial real estate owners a different rate from residential property owners.

'The Rates Act is clear that the rates ratio for commercial property can be equal to but never greater than the ratio for residential property,' he said.

De Klerk said it was not only property owners that encountered difficulties because their properties were becoming financially unsustainable as a result of these soaring costs.

He said rates were passed on to the tenants of commercial properties, placing even more pressure on the businesses, which were also becoming unsustainable and were not renewing their lease agreements because they were being forced to shut up shop.

'The municipal rate in the rand in retail space, for instance, comes through in the affordability of goods on the shelves or for services.'
De Klerk said Sapoa had commissioned the University of Pretoria to undertake an economic impact study of the commercial real estate sector.

The Bureau for Economic Research at Stellenbosch University has estimated the sector made a contribution of between 6 percent and 8 percent to gross domestic product.

Sapoa wanted to know the direct and indirect impacts the commercial real estate sector had on the economy and employment. De Klerk said a large number of people were employed by service providers to the industry.

Business Report


Denny Crane

Denny Crane
It's not me ... yet. Denny Crane from the TV series Boston Legal. Click on picture if you're not sure who he is!