Don’t panic about 12% increase in Joburg property rates – Rates Watch

It is too early to panic about the property values in the City of Johannesburg’s new general valuation roll that is due to open next Wednesday (15  February), says Ben Espach director of valuations at Rates Watch.

Espach has responded to criticism that the increase in the total property valuations outstrips the increase in market value.

The argument is that property values were negatively impacted by the Covid-19 pandemic as well as slow economic growth and the increase of 12% is excessive.

Espach points out that the valuation date of the existing roll is 1 July 2017, and that of the new roll is 1 July 2022.

One therefore has look at value growth over the full five years before concluding that the new valuations are inaccurate.

He adds that different sectors in the market responded differently to the market dynamics.

Sector highlights

“Residential property, especially in the lower price range, [was] not as badly affected by Covid-19,” he says.

“Retail properties like shopping centres, on the other hand, were heavily impacted, but have recovered well. The values in this category would have been higher, but for the effect of Covid.”

In the industrial property sector manufacturing, like retail, was badly affected, but warehousing has been doing extremely well. “Covid did not even cause a hiccup,” says Espach.

The market for office space has however seen a structural change due to Covid-19.

Before the pandemic working from the office was the norm. That changed and some workers will never return to the office, while some employers have a hybrid system that caters for working from both home and the office.

“The demand has been drastically reduced and landlords had to lower the rent they demand. As a result, the valuations of their properties must be lower,” according to Espach.

Objections

He says the question should not be what the percentage increase in the valuation is. That may well affect the owner’s pocket but is not a valid basis for an objection against the valuation.

The first step is to check if your current valuation was market-related on 1 July 2017.

If it was too low and has been corrected in the new roll, the increase may be big, but that would be due to the phasing out of an effective subsidy based on the previous low valuation – and perfectly justifiable, says Espach.

If the new valuation is realistic, the percentage increase is irrelevant for the purposes of an objection.

Espach points out that there is no obligation to object if the new valuation is under market value. The owner must just remember that a correction in a subsequent valuation roll may lead to a big increase in property rates.

The valuation is however only one factor affecting the amount payable for property rates.

Espach advises owners to also check the categorisation of the property. This led to a huge increase for especially independent schools last year, when they were suddenly categorised as businesses and therefore taxed as businesses.

A court application in this regard is still pending and arguments are due to be heard in the High Court in Johannesburg next week.

Espach says residential sectional title units may find themselves categorised as businesses if the zoning of the property or the primary use is for business. If so, they can lodge an objection and apply to change the category to residential before the end of March.

The third factor to determine the amount payable is the tariff, which is determined in the municipal budget process.

Espach says Rates Watch expects the tariff to remain unchanged, but the thinking in the metro around this will only become clear when the draft budget is published for comment at the end of March.

Finally, the rates policy, which is also part of the budget, may provide for relief for certain categories of owners through exemptions, rebates and rates reductions.

Objection period ‘irresponsible’

Espach is very critical of the short objection period the City of Joburg allows.

“It is irresponsible of the metro to allow only six weeks for objections. They should have allowed three months.”

The City of Cape Town will open its roll on 21 February, and allows until the end of April for objections.

Murray Incorporated attorneys says in a statement that in the ordinary course of events, property owners will receive an e-mail notification of their new property value together with their next rates account – but this does not always occur.

If they don’t get such notices, they should inspect the roll themselves. “This can be done by searching for your property on the e-services website for both the City of Cape Town and the City of Johannesburg.”

Once property owners have ascertained their new property value, and if they determine that it exceeds the present-day market value, they may submit their objection to the city using the prescribed form (which can be found on the cities’ websites).

Property owners may want to consider being proactive and obtain one or two independent property valuations from local estate agents ahead of the roll coming out. In complex matters, it is advisable to consult a registered valuer or an attorney, said Murray Incorporated.

A list of municipalities with open valuation rolls is available on the Rates Watch website.