Property rates costs have increased by more than inflation across SA
Property
rates (levied as a rate in Rand by municipalities) have increased
sharply in recent years, rising by more than 50% since 2010 and when
viewed from an international perspective, SA ranks much higher than the
global average in terms of property taxes when expressed as a percentage
of GDP.
During a panel discussion, ‘The Damaging Effects of SA’s Unsustainable Property Rates Regime’ at SAPOA's 2022 Convention and Property Networking
last week, Cobus Hart from Oxford Economics discussed the preliminary
findings of a report on the socio-economic impact of rates and taxes
being imposed by municipalities:
“Water and property rates inflation was on average 3.2 percentage
points higher per annum than headline urban inflation over the past ten
years. Headline Consumer Price Inflation (CPI) has increased by
about 71.6% between 2020 and 2021 while water and property costs have
risen almost twice as fast with an increase of 139.5%,” he said.
Municipalities increasingly rely on grants and subsidies which still
represent the bulk aggregate of municipal income across SA but the share
of grants and subsidies to total revenue has declined sharply in recent
years. This shortfall has been made up through larger income shares for
water sales and taxes from property rates.
“Over the previous decade, aggregate municipal revenue rose by 138%
but income from grants and subsidies increased much slower by roughly
106%. In contrast, income from property rates has increased by a
substantial 167%, only exceeded by revenue from the sale of water,” he said.
“Overall expenditure by municipalities rose by 149% during the
previous decade, higher than the rise in national government spending at
123%. Our preliminary findings suggest that property tax income is used
to support increased spending on the likes of employee costs and
contracted services.”
>From a provincial perspective, water and property rate costs have
increased the most in the Eastern Cape, Gauteng, and KwaZulu-Natal with
increases comparatively lower in Limpopo and the Western Cape.
When sampling a few of the larger metro municipalities including Nelson
Mandela Bay, Johannesburg, Cape Town, and eThekwini, the report
highlights that these municipalities have become more reliant on income
from property rates. Most recently, all of the municipalities sampled
have property tax income shares significantly in excess of the national
municipal average of 17%.
“Property rates are based on an unfair and unacceptable system. Over
the last decade, rates and taxes have consistently increased at a
faster rate than inflation and has increasingly come under the
microscope as landlords focus on preserving their income in a tragic
trading environment,” commented then President of SAPOA and CEO of Redefine Properties, Andrew Konig,, during his opening address.
“Rising operating costs threaten the sustainability of net returns
across the spectrum of commercial real estate and industrial property
investments. As property owners, we are invested in a long-term asset
class … To demand a bigger slice of the shrinking cake is what property
rates increases amount to. If municipalities want to attract further
investment, they should set an example by tackling corruption and
addressing their costs base.”
