Electricity rates a key focus for property owners

FNB property strategist John Loos said electricity already had a significant impact on the property sector and Eskom’s weak financial position posed further risk. Loos said electricity supply limitations constrained economic growth and demand for property. He said Eskom debt levels also exerted upward pressure on yields in the bond market and property capitalisation rates. 

But Loos said the key concern was the impact of the significant increase in property operating costs at a time when many occupants had to contend with a 15 percent tariff hike as requested by Eskom. 

Loos said a sharp rise in electricity costs together with municipal rates and other utilities tariffs had already been a housing-related affordability challenge for a long period. He said electricity per capita income ratio index, using the consumer price index (CPI) for electricity, showed that electricity tariff increases for consumers had increased by a massive 82.7 percent to date to far outstrip per capita income growth.

“This provides a strong incentive for households to lower electricity consumption or to cut broader operating costs in the home to compensate for the sharp electricity cost increases. “One way of doing this is to purchase a smaller home with less ‘frills such as swimming pools’, which can add significantly to operating costs,” he said. “The other way is to cut electricity costs, either through more energy efficient homes or alternative energy sources. ” Loos said FNB, therefore, expected the average building size of new residential properties to decline.