Property sector asks for rates cuts
The property sector is asking municipalities to lower rates and service charges as they battle through the Covid-19 pandemic. Inner-city property funder TUHF’s CEO, Paul Jackson, said last week municipalities need to look at reducing charges for water and electricity and other services, which for years have been rising faster than inflation.
The property sector is pleading with municipalities to lower rates and service charges as they battle through the Covid-19 pandemic.
Inner-city property funder TUHF’s CEO, Paul Jackson, said last week municipalities need to look at reducing charges for water and electricity and other services, which for years had been rising faster than inflation.
In an interview with Business Day, Jackson said that property valuations and rentals were under severe pressure and about R100m worth of developments in Johannesburg were on hold. He expected no recovery in property fundamentals before 2021.
“The inner city is resilient, but Covid-19 and the lockdown have had severe effects on the businesses and projects which we finance. When momentum returns to our economy, businesses will still need support. That can start with an easing of municipal costs. Water and electricity prices have gone up more than inflation in recent years. I think now is the time for them to start coming down,” Jackson said.
Listed property funds are also hoping for an easing in municipal costs.
“Property owners directly or through the South African Property Owners’ Association (Sapoa), have been at pains trying to highlight the catastrophic value destruction that municipalities are causing with these sustained above-inflation increases of municipal rates,” said CEO of Dipula Income Fund, Izak Petersen.
“Ultimately, SA will pay a dear price as properties will lose value and rapid urban decay will occur as landlords will have less money to maintain properties.
“Instead of filling gaping municipal budgetary holes by squeezing the last blood out of paying property owners, municipalities should become more efficient, address corruption and incentivise more investment through realistic rates and good service delivery,” he said.
Petersen said that there was a misconception that commercial property owners could go on absorbing these exorbitant increases forever.
“They can’t, and sadly it affects large and small business alike as they tenant these properties and ultimately the most vulnerable of society as it makes its way into the pricing of goods and services,” he said.
The Covid-19 pandemic had created the opportunity for municipalities to set rates at progressive levels, rather than the “sustained punitive levels that will only lead to a disastrous situation for all”, Petersen said.
Estienne de Klerk, Growthpoint Properties SA CEO and spokesperson for the Property Industry Group, said increases in administered costs had been severe for years. The Property Industry Group, made up of the SA Council of Shopping Centres, the SA Property Owners Association
and the SA Reit Associations, was formed recently to help retailers by offering rental discounts or deferrals.
“We are working with Sapoa to make submissions to the government about the continuous level of administered cost increases. These have averaged over 10% over the past 10 years and make up 62.5% of all operating costs today. This is unsustainable for our industry and shows how the municipal rates act is being abused,” he said.
De Klerk said the property industry had borne “the increased burden of having to provide services at our properties due to poor service delivery”. Growthpoint had to upgrade one of the busiest intersections in the country at Woodmead because the Gauteng province “apparently doesn’t have funding to do so”, he said. all In of April,’ SA s Sapoa municipalities sent letters to in which it called for some relief for its members. Sapoa’s letters said it represented a cross-section of property owners, developers and managers in SA involved in the provision of retail space in thousands of shopping centres.
The portfolio also included most office parks, factories, warehouses, and hotels in the country. Its members also included shopping centre owners.
“The lockdown is having an extremely detrimental effect on the financial position of all shopping centres and office park owners due to 80% of the tenants having been forced to discontinue business operations during the lockdown period and hence they are not in a position to pay the rentals due by them to landlords,” Sapoa said in a letter to the city of Tshwane.
Sapoa CEO Neil Gopal said “the reality is that many businesses will be closing down, and many employees who are lucky enough to keep their jobs may be faced with reduced remuneration from their employers or at best zero annual increases”.
He said this was “not a time for a business-as-usual budget. Rates should not be increased at all. The city should look back to the previous years when its total rates revenue increased as a result of better than expected general valuation results. Subsequent annual increases were implemented on top of that excessive increase. Now is the time to follow the example set by the National Treasury and to go easy on ratepayers.”
Sapoa called for a prohibition on suspending electricity and other services and imposing other credit control measures during the lockdown and at least four months afterward or until the position returned to normal.