Rising rate bills adds to commercial property sector woes

Municipal rates, electricity and water costs have spiralled over the last decade.
Municipal rates and tariffs are making up an ever-increasing proportion of operating costs for the commercial property sector. Picture: Bloomberg

Municipal rates and tariffs made up 63.9% of the commercial property sector’s operating costs in 2018, up from around 41% in 2000, according to the latest Macro-Commercial Property Outlook report by FNB. 

This comes as rates, electricity tariffs and water costs have spiralled over the last decade on the back of ailing infrastructure and mismanagement at Eskom and municipalities.

Read: The tariff mess the City of Tshwane made 

FNB property strategist John Loos says the situation is unlikely to improve. “The reality is that above inflation hikes in municipal rates, as well as tariffs for electricity, water and other services, are set to continue for the foreseeable future considering the poor state of government and Eskom finances.”

He adds that operating costs are expected to experience further upward pressure from strong municipal increases… “Such cost increases for tenants, in a weak economic and rising vacancy rate environment, could exert further slowing pressure on landlord pricing power and thus on rental growth.

“In fact, according to the MSCI database, rental growth already recorded a below inflation rate of 3.6% in 2018.”

Loos says the increasing municipal rates and tariffs component to commercial property operating costs could be even higher if it were not for landlords rolling out on-site self-generation solar power and water projects.

John Loos, FNB’s property strategist. Picture: Supplied

Concerns around spiralling municipal costs and the impact on the commercial property sector have been raised on numerous occasions by the South African Property Owners’ Association (Sapoa).

Just last month, former Sapoa president and boss of Motseng Investment Holdings, Ipeleng Mkhari, described it as a “burning issue” for the industry during an address at the Sapoa Convention.

“Rising municipal rates and taxes negatively affects not only operating costs and gross rentals, but also puts demands on property management resources. It has been the second fastest-growing operating cost item for property owners and investors since 2007, with a compound annual growth rate of 9.7%.

“In fact, only electricity costs have risen at a higher pace.”

Mkhari added that over the last decade, rates and taxes have increasingly come under the microscope as landlords focus on preserving net income in a challenging trading environment.

“Rising operating costs threaten the sustainability of net returns across the spectrum of commercial and industrial property investment. Since the sustainability of the property sector is a key focus for Sapoa, we have been vocal in challenging the basis and consistency of municipal rates charged to our members.”

Ipeleng Mkhari, CEO of Motseng Investment Holdings and former Sapoa president. Picture: Supplied

She said the commercial property sector acknowledged that rates were necessary to fund municipal infrastructure and services, however, it needed to be levied correctly and come with the requisite level of service delivery.

Read:  How electricity, rates have squeezed owners, landlord

“Our constitution and laws are clear that rates and taxes must be levied in a just and equitable way and this should be done by accurately determining the value of properties.  As an industry body, Sapoa is committed to ensuring rates are being levied from a correct base, and not being overcharged,” said Mkhari.

Meanwhile, in his latest report Loos also raised concerns that the government’s finances “poses a significant risk to property capitalisation rates”.

“The parlous state of government and Eskom finances threatens the performance of the property market in a few ways. In addition to the impact of above-inflation municipal rates and tariff increases, rising government and parastatal indebtedness makes the future scope for fiscal stimulus for the economy less possible, thus constraining economic growth and the demand for commercial property,” he said.

“But a further key risk is that at some future point the bond investors (will) become far more concerned with the possibility of government defaulting on its debt, exerting significant upward pressure on bond yields. And, higher long bond yields can exert upward pressure on property capitalisation rates,” Loos warned.



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Not only to the commercial sector but to ordinary private property owners as well. More and more private property owners will lose their properties due to spiralling rates and taxes and basic fees. You don’t need formal expropriation of properties, it is happening already.

Municipal rates are out of control and are going to put many property owners (commercial and househilds) in serious financial difficulty.
The ANC’s idea of ” City Councillors (jobs for pals) are a serious drain on a Citys coffers. The salary roll conti uses to escalate exponentially and Citys have “no money” to fix roads and do other essential maintenance.
In the old days the Mayor was a figurehead position, he attended two meetings a year, and got a chp of tea – not a R 2 million salary.

Quite right! All property is under pressure from our revolutionary masters mob. Valuations were increased far beyond what is a realistic and sustainable values. Add to the increased taxes and rates the decease in service, safety, security and reliability of supply and you end up with a sum that makes no sense unless you are the government counselor getting your turn to “eat” as some like putting it. Top that off with the dysfunction and insolvency of the municipalities and what you get is the South African story – pay more for less and shut up cause you deserve it. Happy we will be only once everyone has nothing… Hard to find anything positive in this hot mess.

Do you realize that the current situation is actually far worse than expropriation without compensation? If the government went ahead and expropriated all property, then, like in the USSR, we would not have to pay rates and taxes. The current situation puts the government at a huge advantage. We have to finance our property via the banks, work like crazy to service the bond, pay for the maintenance, take out insurance and work in the garden while the capital appreciation is stolen through rates and taxes.

The current system of administered costs and rates and taxes is a formula that changes an R10 million house in a security complex into 100 houses in an informal settlement. The economic value of the house is syphoned off through the municipality and donated to the squatter camp. So, in effect, we are working to service the bond that is financing service delivery in the squatter camp. This is not freedom. This is slavery. You see, socialism is much more sustainable than communism.

Nothing is for free. It is the soft targets that are paying for all the freebees that are being promised at service delivery protests. About time these soft targets say “enough is enough”

Not only increases in costs way above inflation but also tenant standstills, defaults, vacancies etc. The market has picked this up. look at growthpoint-despite annual rental escalations and no major move in interest rates its 5 year performance is flat ie ZERO share price growth. Not the managements fault-simply put- the market is stalling if not failing.

To solve the problem and force Government to act in a positive way….. BOYCOTT rates and taxes ……


Unfortunately that doesn’t work. We are all the losers in a rates boycott. Grahamstown (now a hovel) and Port Alfred are prime examples – and there are many more.

The ANC have employed the following draconian methods to try transform the city:
– There is over-employment of at least 60% within ANC local authorities – Jhb has inherited this from the ANC administration. This dead wood never goes away and remains a burden for the rest.
– Do not even try collect outstanding debt from black townships – its bad for votes.
– Shift the burden of responsibility onto the previous white areas – someone has to pay the bills and make the willing pay.
– The corruption in the ANC local authorities is massive.
– There is a vindictive trend with the ANC and EFF blocking growth initiatives within DA led municipalities to try make the DA look bad. The result is a massive cumulative effect of money not landing up in local economies.

For the last 10 years my rates have gone up 11% per annum compounded.
Latest CPI figure around 4%, who are they trying to fool?
On top of this I pay R500 per month to the homeowners association to keep criminals away and do jobs that the municipality are supposed to do.
In return I am assessed as having a more expensive property fueling the 11% escalation.

In the 90’s a rates boycott was organised in Sandton. Is anyone up for this again?

Don’t forget that a portion of your home owner’s levy includes a tax to fund the useless Sectional Title Ombudsman bureaucracy.

R70 million of its money was immediately invested in VBS Bank.

I am currently disputing a 100% (yes 100 percent) increase in the (apparent) value of our primary residence. This equates to a rates increase of approximately 80%. This while property prices are dropping and our services are non-existent. This is EWC in progress. Taxes are out of control – the Laffers curve tipping point has been reached long ago.

I think the DA led admin in JHB has been the abuser of over-inflating the rates in the city in the past two years, whilst not enough to make the usual defaulters come to the party. The electricity tariff increases that was enacted today that requires people on prepaid to pay R200 monthly fee is a case in point. In CoT it’s R150, in Tshwane Afriforum took the City to court about this new tax/levy.
Let’s not shield the DA, it’s fast becoming a wolf in sheepskin in Gauteng.

The route cause of the escalating municipal charges are the change in demographics of the residents. The mix between residents that can or could afford to pay the charges and those that cannot has been and will continue to swing towards the “non payers”. Every year more “non payers” than “payers” reside in the cities & towns. This is as result of urbanization and the migration of “rich” people out of the major cities like Johannesburg. The demand to develop infrastructure for the (protesting & burning) non payers exceeds the availability of funds paid by “payers”. This will just get worse over time. Less & less will be available to spend in the traditional suburbs & city centers. The same applies to government taxes collected. Unless we see a massive increase in economic activity & growth, SA towns & cities will end up looking like slums.

As a landlord your electricity bill, water, refuse sewer and rates payments generally equal or exceed your rent on the property.

This means you are working for council and not yourself. Roll our a few more years of ridiculous increases and property ownership becomes a muggs game.

Just another business sector destroyed by the ANC to go with mining, construction, textiles, and tourism.

What else is there left to break? Oh. Better raise tax collection targets by another 30%. Don’t want to have get strict on the the ministerial handbook and all that.

At the Hyprop pre-close meeting last year management stated that the municipal levies on some of their properties exceed the rental income! Government is not just destroying the middle class by making home ownership unaffordable, but most jobs in the construction and property management industries are at risk given that investment and value enhancement are massively value destructive due to rampant unfair municipal property tax and charges

End of comments.



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