Landlords in Cape Town ask for help
Property landlords are calling on the state to freeze rates and to provide tax relief. These would help them conserve cash so they can help their tenants survive the 21-day Covid-19 national lockdown and its aftereffects.
CAPE TOWN’S COMMERCIAL PROPERTY OWNERS SAY THAT THE CITY SHOULD FREEZE OR AT LEAST EASE RATES TAXES
THE CITY SAYS THAT IT CANNOT FREEZE RATES AND SERVICE CHARGES AS THIS WOULD FORCE IT INTO BANKRUPTCY
Property landlords are calling on the state to freeze rates and to provide tax relief. These would help them conserve cash so they can help their tenants survive the 21day Covid-19 national lockdown and its after effects.
Commercial property owners, who are struggling through a recession and will not be able to pay dividends or buy real estate in 2020, are instead turning their focus to managing debt and paying staff.
A group of landlords that collectively own R20bn worth of real estate in Cape Town recently sent letters to the city pleading for a rates freeze.
The companies include Aria Property Group; Daleglen Property
Group; listed group Fairvest; Ingenuity Property Investments; Inospace Properties; Signatura Property Developers; Spear Reit, Sujean Property Investments and Swish Property Group.
The effort is being spearheaded by Western Cape property group Spear Reit and its CEO, Quintin Rossi.
“We write to you to appeal to the City of Cape Town to suspend all property rates and taxes levied on properties in Cape Town for the period April 1 2020 to July 31 2020,” one letter says.
The appeal did not call for Cape Town Central City Improvement District levies to be suspended as they are classified as an essential service.
“This appeal is made on behalf of all Capetonians who contribute towards property rates and taxes.”
The landlords say the protection of jobs is paramount.
“Dealing particularly with real estate firms we employ external suppliers such as site security, site cleaning teams, repairs and maintenance contractors and multitudes of construction workers during property development projects whose livelihood will also be negatively affected should we not obtain the necessary relief sought,” according to the letter.
Analysts say tenants feel that they have been left in the dark.
Nathalie Schooling, CEO of Cape-based customer experience company nlighten, commends the landlords for approaching the city and says that tenants and landlords should not be afraid to engage with one another.
Tenants must not be afraid to talk to their landlords about their financial struggles, she says.
“Often, the execs in retail property management organisations as well as the owners have no direct communication with their tenants, leaving it to mid-management to form these relationships.
“Post Covid-19 I suspect that many business will rethink how they work and potentially scale down their office space.
“Retailers will also need to innovate, which again can mean rethinking leases and floor space,” she says.
The City of Cape Town says it acknowledges the landlords’ approach but it cannot freeze rates and service charges as this would force it into bankruptcy.
“The city fully understands the enormous problem that property owners face at this time. The issues that arise are unprecedented, and the impacts are devastating to our economy, our people and the businesses that employ them. Unfortunately, that holds equally true for the city and all local governments,” deputy mayor Ian Neilson said.
“We are facing exactly the same challenges and equally do not have a bottomless pit of cash that can carry the city over a long period.
“We need to start with numbers to show the extent of the matter,” he said.
According to Neilson, the city’s expenditure is R41bn per year or about R3.4bn a month. Its budgeted income is also R41bn, and rates and service charges comprise R30bn, an average R2.5bn per month, equal to 72% of its income.
He said the city’s unencumbered cash and cash equivalents were R10.4bn. It therefore had cash to cover three months of expenditure, “which in a normal environment would be adequate coverage.
“However, given the risks to its income streams that the city is now facing, if we were to agree to requests for a fourmonth scrapping of rates and service charges, the city would run out of money. And if it is for rates alone, it would simply be a few more months before the cash ran dry.
Meanwhile, listed real estate investment trusts (Reits) are also trying to find relief where possible. SA Reit Association chair and Growthpoint Properties SA CEO Estienne de Klerk says Reit rules and taxes will need to be relaxed for a period for companies to get their houses in order.
The association sent a proposal to the Treasury about relaxing Reit tax rules.
SA Reits must pay out 75% of their taxable income as dividends to investors. These dividends are taxed in the hands of the shareholders and not at company level.
But a number of Reits have suspended dividends because they want to hold on to cash for day-to-day operations as well as to upgrade assets so they can retain tenants, says Evan Robins, a fund manager at Old Mutual Investment Group.