Read the AG’s report before you invest in a municipality, says Sapoa CEO

Property body warns that the chaos in municipalities ‘is filtering at exponential speeds into the pockets of already strained property owners’.
The Auditor-General’s revelation that no one can account for R5.5bn at the country’s worst-run municipality is a clear sign the roots of corruption run deep. Image: Moneyweb

Local and international investors have been warned by South African Property Owner’s Association (Sapoa) CEO Neil Gopal to carefully consider where they invest in the country following Auditor-General (AG) Tsakani Maluleke’s damning 2019/2020 municipal audit outcomes report to parliament last week.

The report highlights R5.5 billion in unaccounted-for spending in the worst-run municipalities and R26 billion in irregular expenditure at municipalities overall countrywide.

“Investors need to read the AG’s report and then reflect very carefully on any new developments or investments they intend making in South Africa, especially investments into a dysfunctional municipality,” Gopal tells Moneyweb.

“If you as an investor have no control over your annual property rates bill or water and electricity bill, if you don’t have a guarantee of water and electricity [supply], or you have intermittent or no service delivery, where exactly is the value proposition?” he asks.

“The increasing rate of local municipality collapses around South Africa will make the Eskom crisis look pretty uncomplicated,” says Gopal.

“The recent experiences of Clover and JSE-listed Astral Foods in closing and or moving their businesses [in North West’s Ditsobotla and Mpumalanga’s Lekwa local municipalities] as a result of municipal failures are symptomatic of the issues around unauthorised, irregular, and fruitful and wasteful expenditure, in addition to fraud and corruption within municipalities,” he adds.


Gopal notes that both the latest report from the AG as well as National Treasury (on Q3 local government revenue and expenditure for the 2020/21 financial year) highlight concerns around such financial practices at South Africa’s municipalities.

“Simply put, the so-called ‘financial distress’ at most municipalities is largely as a result of large-scale looting and corruption,” he says.

Neil Gopal, CEO of the South African Property Owners’ Association. Image: Supplied

“We are approaching a situation where there is basically no value or investment proposition left any longer.

“The landscape out there is one where your expenses exceed your income, where you pay taxes but cannot get access to water and electricity, where your annual property rates increases far exceed inflation, where you have to spend millions on generators and water tanks due to no supply or intermittent supply of water and electricity,” says Gopal.

With only 10.5% of the country’s 257 municipalities receiving clean audits, he says it is evident the financial situation among municipalities is dire, with lack of accountability rampant among officials.

“The AG’s revelation that no one can account for R5.5 billion at the country’s worst-run municipality is a clear indication that the roots of corruption run deep, especially considering that some municipalities fail to submit financials for auditing purposes, therefore leaving a financial reporting vacuum,” he notes.


“Most concerning is that the chaos in these municipalities is filtering at exponential speeds into the pockets of already strained property owners [who] are expected to empty their bank accounts to keep municipalities afloat through unjustifiable tariff hikes in property rates, water, refuse removal, and electricity among others.”

Gopal highlights the latest tariff increases in the City of Joburg, such as the 14.59% hike in electricity.

“This is far above acceptable, particularly in the current economic climate … However, perplexingly, the city’s mayoral committee on finance’s councillor Jolidee Matonga expressed that among [the] factors considered when deciding on the tariff increases was the economy of the country and the impact of the pandemic,” he says.

“It is exploitative to expect property owners to carry the burden of servicing municipal budget shortages spurred on by corrupt activities and mismanagement.

“The increasing tariffs, which are supposed to be reduced with new general valuation rolls but are not, are now unsustainable, and businesses are shutting down as property owners’ expenses are starting to exceed their income.”

Listen to Suren Naidoo’s recent interview with Gopal on The Property Pod: 



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Five years ago, I closed up shop for these very reasons and a few more,
The sad reality is that this is not even taking from the Haves’ and giving to the HaveNots’ but rather its a case taking from Everyone and Giving Nothing back whatsoever.

SA electricity price are more than that of the USA…

The situation above reflects the “As @Sensei has put it” the cognitive ability of the average voter, the value owner has to ensure that they provide and guarantee all necessary means for the service vendor to perform but the service vendor cannot guarantee that they will deliver as contracted to do so.

Given the latest round of politics and proposed policy it seems that the value owner who refuses to guarantee and pay for unrendered services will be prosecuted and deemed a criminal.

The lip service guarantee by politicians have runout, there are better options out there with less risk for higher reward.

The unaccountable and criminally-minded people in power use their ability to regurgitate meaningless phrases like “we will leave no stone unturned”, “we condemn the corruption in the strongest terms”, “we have implemented a turnaround plan”, “the branches appointed me to this position” and “it is nobody’s fault because the accountability lies with the collective” to camouflage their own individual positions of plunder.

The ANC municipal leaders are rotten to the core and they serve only their narrow self-interests, but they are valid representatives of a constituency of voters who are similarly self-interested and rotten to the core.

Bankruptcy and a failure of the banking system are unavoidable in any country where such a constituency of intellectual dwarfs with weak moral fiber, and who suffer from the slave mentality, appoint the government and the municipal leaders. In a democracy, the purchasing power of the currency, the soundness and health of the banking system, and the ability of the economy to create jobs are merely manifestations of the attitude and mindset of the average voter.

The decisions of the voter determine the value of a property in a municipality. The value of the property serves as collateral for a loan. The aggregate value of the collateral relative to the size of the loan book determines the health of the bank. A design flaw in the mindset of the average voter will quickly end up in the lap of the Governor of the Reserve Bank and he will be forced to devalue the currency to compensate for this design flaw in the cognitive ability of the voting majority.

As the voting majority “can do no wrong” – the obvious outcome will be to devalue the currency.

When the voice of industry speaks with this authority, it has to be taken as a stern warning. Also, what applies to the municipalities applies to the country as a whole. The higher you are in the tax bracket, the less return you are getting for the taxes (plural) you are paying. Where this used to be, for example, the middle class and higher, it now applies to those in the lower classes. The more money you make, the more the State extracts from you, and the less you get in return. Much as some argue that we are not a failed state, it is quite evident, from SAPOA’s comments, that we are a failing state.

Good advice, could only find a report covering 2018-2019. Is there a newer one?

W Cape is far more investable than any ANC led province or city.

End of comments.




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