Landlords concerned as rates, taxes spike
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.