Municipalities must cut costs to stay afloat

UNDER lockdown and physical distancing rules, many businesses and property managers are facing challenges in terms of asset returns and cost recoveries.

The biggest cost item with regard to a property is municipal rates, followed by utilities. The pre-Covid-19 business model was based on an unending supply of commercial and office space with excessive municipal charges such as town planning fees, environmental assessment impacts and permits, and crazy demands on property developers to build roads and even maintain public spaces.

Umhlanga/Sibaya is a perfect example of a place where you pay municipal rates, plus other levies to maintain and secure public spaces and verges. On a new prime, residential development, I was advised you pay estate levies, clubhouse levies, precinct levies and rates.

While these are really aesthetically pleasing, the costs are horrendous on the overburdened ratepayers and premium taxpayers.

In post-Covid-19, a new scenario will emerge with many property owners putting on a brave face, but deep down facing anxiety and a higher cost-to-income ratio. Wait until you hear about municipalities’ arrears in collections. A huge shocker is coming.

Municipalities will have to take cognisance of the new reality and look at cost-cutting measures. Early or compulsory retirements, a four-day working week, job rotations, shrinking and reducing the number of departments and a target of reducing expenditure by at least 25%, are on the cards.

MUHAMMAD OMAR | Durban North