Property valuations flawed, says ratepayers’ agency

Are properties in Knysna being valuated properly? Not if valuations conducted by DDP Property Valuers for the municipality is doing them, according to the Knysna Ratepayers’ Association (KRA).

It argues that if the valuation role for the entire town was market related and uniformly applied, the percentage charged per rand of valuation would be a lot lower. “Unfortunately, it is generally the higherpriced properties that have the lower than market-related valuation and the lowerpriced homes that have the more accurate valuations,” states the KRA.

The valuation roll reflects the value of the Log Inn in Grey Street as R18-million, and Graywood Hotel as R14.4-million, while the Turbine Hotel on Thesen Island, supposedly in the high-end market, is similarly valued at R15.8-million. The old part of Rex Hotel and Commercial Centre is valued at R48-million, and the Protea Hotel on the waterfront at R70-million. ‘15 years of errors’

According to the municipality, DDP property valuers is its appointed valuers, “through a competitive bidding process for three years”.

The KRA disputes this, saying DDP was appointed for three terms: 2007 to 2012, 2012 to 2017, and 2017 to 2022 – “which will amount to 15 years of potentially repeating the same valuation errors”.

The crux of the matter is the valuation methods used, the KRA says. The municipality states that the date of valuation for the current roll stipulated on 1 July 2016 is still valid and that three acceptable methods are utilised depending on which properties are being valued, but the KRA contends that one method should be used and not all three.

“Unfortunately it seems as if DDP have used all three in a rather haphazard manner, which has resulted in the situation that we have in Knysna,” states the KRA.

It refers to the more preferable “comparable sales” valuation, which is a real estate appraisal method that compares a property to others with similar characteristics that have been sold recently. The method takes into account the effect that individual features have on the overall property value.

‘One method should apply’

“This is the only method that should have any merit but this valuation is based on both the land and the improvements, and the current valuers only have the land size, not the improvement size, so without one of the main components in the equation it is

impossible to give a fair comparative value,” states the KRA.

The other two methods used are known as “accrued depreciation” and “income capitalisation”.

The KRA contends that neither of these two methods should be utilised, because appreciation of property and value of land are not taken into consideration, and often information required for this is not accurate or verifiable as it generally comes from the landlord or owner.

The municipality states that where there are objections against or interim valuation requests for individual properties, the matters are investigated and values adjusted if necessary. “If we are provided with interim valuation requests for individual properties we will investigate the matter,” it states.

But the KRA says the failure of this system is that there is no reason for a homeowner to object if his property value is low, so you have the scenario that if you want a fair valuation across the board in Knysna, it would require an objection to be lodged for every property that is inconsistent with another, with reasons listed – an extremely arduous task to tackle, especially as a pro bono exercise.

‘Revalue entire roll’

“With the shambles that the roll finds itself in, surely a better solution would be to have the entire role revalued by a different valuer or value system. If you were to take the whole of the industrial area and value it per square metre of land value only at going market rates in 2016, the value of the industrial area would be higher than it is valued at present with both the buildings and the land. There are land and building properties in the industrial area valued at less than 50% of the price that was paid for the land only,” it states.

Although the municipality says the value of the properties should reflect market value as on the date of valuation, the KRA says this is not the case.

“The problem is consistency, the system is flawed and the results speak for themselves. There are absolutely irrational valuations in both directions high and low, with many people suffering at the expense of others.”

The municipality states it is aware that there are concerns and have requested people to submit such information so that it is dealt with case by case instead of generally. “This does not necessarily mean higher rates, though,” it states.

“This is an ill-informed response to a very sad and inequitable situation,” says the KRA. “The rates can be either higher or lower but in the end they must be accurate, defensible and comparable, no matter what.

‘Muni reneging on its duty’

“Why is the municipality reneging on its duty and obligation to the ratepayers of Knysna to deliver a fair valuation roll? All it should take is for there to be 20% inconsistent valuations in an area to require a revaluation of the entire roll. We have been reliably informed that this current valuation cost Knysna R5-million which amounts to approximately 0.5% of Knysna municipality’s budget. Was this money well spent?” the KRA wants to know.

When requested for comment on the fact that Woodmill Lane at R99-million is valued much higher than the Waterfront at R59-million, the municipality said, “No objections or interim valuation requests were received against these properties. No property descriptions were provided and the valuer did not investigate the mentioned valuations. We can therefore give no comment in this regard.”

The KRA responds: “How is it possible that the valuer did not investigate the valuations of two of the larger (top 10) properties in Knysna? These properties should benchmark the values of commercial properties for the rest of the town.”

Professional valuer Corne Theron of DDP was sent a list of questions and asked to comment on the matter but declined, stating she was asked not to.

“I received a call from the CFO of Knysna Municipality … instructing us as appointed service provider to not engage with the local media regarding the Knysna general valuation roll.”