The Joseph family from Johannesburg could be spending all the rental income from their two buildings in Louis Botha Avenue on property rates over the next five years and still have to pay in from other sources.
This follows after the valuations for the buildings were drastically increased in the latest City of Joburg general valuation roll published on February 20 this year.
According to Bronson Joseph the valuation for the building at 620 Louis Botha Avenue, Bramley, with mostly commercial and a few residential tenants, has increased from R7 million to R43 million.
In the previous round of valuations the building was initially valued at R15 million. After an objection it was lowered to R11 million, and on appeal this was eventually set at R7 million.
“We’ve been having problems with out valuations for the last ten to 15 years,” Joseph says.
The family’s other building at 438 Louis Botha Avenue, with mostly residential and a few commercial tenants, was previously valued at R5 million. It has now been increased to R20 million.
“This is going to cripple us,” Joseph says. He believes the valuations are far off the mark and should in fact have decreased in line with the deterioration over the last two years of the area in which they are situated.
He has already taken steps to object to the new valuations, but realises that the Municipal Property Rates Act requires owners to pay the increased rates bill based on the new valuation until the objection has been finalised.
And that could take a very long time.
Director of valuations at Rates Watch Ben Espach says the new valuations are obviously wrong and questions why the municipal valuer failed to consider the history, particularly of the first building.
He confirms that the owners will have to pay rates based on the inflated valuations from July 1, in accordance with the Act. If they don’t, their electricity will be disconnected.
They can approach the council to stop credit control until the dispute has been resolved, but if granted that will only be valid for a month whereafter they have to reapply. This is only allowed for three consecutive months, while finalising the objection may take up to 18 months.
In the meantime the owner has to continue paying the increased amount. “This can result in the closure of a business,” Espach says.
Espach says all properties in Johannesburg have been revalued, totalling almost 900 000. The new values were published on the City’s website on February 20 this year and owners can submit objections to their new valuations until April 6.
Owners can search their property’s valuation here and also lodge objections electronically via the website.
Espach says from what Rates Watch has seen so far, the valuations are a mixed bag. Some are almost unchanged, while others like the valuations of the Joseph family’s buildings have doubled or more. Some have been decreased.
It does however seem as if residential properties have been valued quite aggressively, especially in the higher price range, Espach says.
He says it is important that owners realise that the valuation is based on the market value of the property on July 1, 2017. “It is actually a snap shot of the market on that date.”
He cautions that valuations that have doubled are not necessarily wrong, since the previous valuation might have been too low. The pertinent question is what the market value was on July 1 last year.
Sandton City’s valuation has for example doubled from R5 billion to R10 billion, but one would have to do an in-depth analysis based on the rental income to determine whether the new valuation is correct, he says.
Another Rates Watch client has seen the valuation of his house in Sandringham increase from R5.7 million to R10 million. The new valuation is however correct since the previous one was too low.
Such a big increase however warrants proper investigation, Espach says.
Objections should be based on market value at the valuation date.
Owners of residential properties should include information of comparative sales in the same area and for commercial and industrial buildings information about market related rental income should be included.
An office block in Ferndale has been valued at R140 million now, instead of R70 million. He says the new valuation clearly does not take into account the deterioration of the market from an income of up to R75/m2 in 2012 to the current R55/m2.
Market-related rental income Espach cautions, is not necessarily the same as real income. Older leases with relatively high escalation clauses could result in rental income above market value, he says.
Owners should also check the categorisation of their property on the valuation roll, Espach says. Each category, for example residential or business, is rated at a different tariff and a residential property billed at a business rate could for example be overcharged substantially.
Owners who are unhappy with the outcome of their objections have a further opportunity to appeal and can take the result of the appeal on review in the High Court if they are still unsatisfie
Espach warns that owners who do not object to their property valuations before the closing date could be bound to them for the next five years, until the next general valuation.