Land­lords con­cerned as rates, taxes spike

The Star Early Edition - - BUSINESS NEWS - Roy Cokayne

LAND­LORDS are be­com­ing in­creas­ingly con­cerned about the growth in the cost of rates and taxes, which have spiked at twoand-a-half times the in­fla­tion rate, re­sults of the lat­est re­search con­ducted for the SA Prop­erty Own­ers’ As­so­ci­a­tion (Sapoa) show.

Rates and taxes were the sec­ond-fastest grow­ing op­er­at­ing cost item for prop­erty in­vestors be­hind elec­tric­ity and now cost twice as much as a decade ago, said an­a­lysts at In­vest­ment Prop­erty Data­bank.

Re­leased this week, it ex­am­ines com­mer­cial prop­erty rates and taxes in the coun­try’s eight largest mu­nic­i­pal­i­ties.

Neil Gopal, the chief ex­ec­u­tive of Sapoa, said yes­ter­day that ris­ing op­er­at­ing costs threat­ened the sus­tain­abil­ity of net re­turns across the spec­trum of com­mer­cial and in­dus­trial prop­erty in­vest­ment. “Real in­creases in rates and taxes have been pro­nounced in the re­tail sec­tor. Since 2007, re­tail prop­erty rates and taxes have grown by in­fla­tion plus 11.6 per­cent.”

He said to­tal op­er­at­ing costs for com­mer­cial prop­er­ties this year av­er­aged R47 per square me­tre, of which R11.60 a square me­tre went to mu­nic­i­pal rates and taxes. This meant they ef­fec­tively dou­bled in real terms since 2000, when rates and taxes ac­counted for R4.93 a square me­tre, he said.

The re­port also high­lights that rates and taxes have in­creased at a higher rate than com­mer­cial prop­erty val­ues since the global fi­nan­cial cri­sis and sub­se­quent re­ces­sion.

Gopal said this growth had by June this year re­sulted in an over-re­cov­ery of com­mer­cial rates and taxes of about 12 per­cent and there was lit­tle like­li­hood the gap would close in the fore­see­able fu­ture.

The re­port also found a weak re­la­tion­ship be­tween a prop­erty’s mar­ket value and the level of rates and taxes levied, with the largest mis-pric­ing in the of­fice and in­dus­trial sec­tors, which were where prop­er­ties had unique char­ac­ter­is­tics that could im­pact their value.

It also stressed that some smaller mu­nic­i­pal­i­ties at­tract more built in­vest­ment by chang­ing their rates poli­cies.

Nel­son Man­dela Bay, Buf­falo City and Man­gaung charged com­mer­cial prop­erty rates of more than 2 cents in the rand, which was not con­sid­ered pro-business. Gopal said a “cents in the rand” rate could act as a cat­a­lyst to in­crease in­vest­ment flows.

Sapoa KwaZulu-Natal re­gional chair­man Ed­win van Niek­erk echoed this, stress­ing that mu­nic­i­pal­i­ties would do well to ex­pand the rates base rather than sim­ply in­creas­ing the bur­den on ex­ist­ing land­lords. “Rates and the cost of do­ing business are a key in cor­po­rate lo­ca­tion de­ci­sions. It’s a bal­anc­ing act that ci­ties get wrong at their peril.”

How­ever, the chal­lenge fac­ing mu­nic­i­pal­i­ties is that prop­erty rates and taxes were a key gen­er­a­tor of rev­enue and this year ac­counted for 17 per­cent of rev­enue for the eight mu­nic­i­pal­i­ties in­cluded in the study.

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