There is a prospect of some relief for property owners who suffered severe damage to properties in the recent unrest in KwaZulu-Natal (KZN) and Gauteng, as municipalities give effect to legal provisions by adjusting the valuations of affected properties.
Such valuations form the basis for the calculation of property rates payable to local authorities.
The Johannesburg and eThekwini metro councils have already invited affected owners to furnish them with the relevant detail.
According to Peet du Plessis, president of the Chartered Institute of Government Finance, Audit and Risk Officers (Cigfaro), almost all of the more than 40 local municipalities and at least the other two metro councils in Gauteng (City of Ekurhuleni and City of Tshwane) are also expected to publish supplementary valuation rolls with adjusted valuations for affected properties.
Billions in damage
Du Plessis, who is also head of revenue at the eThekwini metro in Durban, estimates the revenue impact on that council to amount to as much as R1 billion. Its budgeted revenue for this fiscal year is currently about R54 billion.
The South African Property Owners Association (Sapoa) said on July 14 that about 100 shopping centres in KwaZulu-Natal were either burnt or severely damaged, as were several large distribution centres in especially the Durban area.
This came after violent protests and looting followed for days after former president Jacob Zuma was arrested and jailed for contempt of court. More than 300 people died.
Gauteng premier David Makhura on Friday (July 30) stated that 30 shopping centres in the province were affected by looting in the townships of Ekurhuleni and Johannesburg, areas in Tshwane, one area in the West Rand, and two areas in Sedibeng.
Some listed property companies also reported damage to properties in Mpumalanga.
Municipal revenue impact
Du Plessis says the impact on municipal revenue will depend on the rates contribution of the damaged properties. “In Eshowe for example, there is only one shopping centre and it has been completely destroyed,” he says. It may have a significant impact on the revenue of that municipality.
Some funds will however become available after KZN Premier Sihle Zikalala recently declared the province a disaster area and municipalities hope the funds will be utilised to assist them. The municipalities will nevertheless have to prepare adjustment budgets in light of the lower expected revenue and changed spending priorities.
Ben Espach, director for valuations at Rates Watch, says both Johannesburg and eThekwini have invited affected owners to contact the metros to have their properties revalued.
In its notice the Joburg metro clearly states that it is structural damage that would trigger a reassessment and it will be informed by the extent of the damage and how long it will take to repair.
After the repairs have been completed, the property will once again be revalued.
Espach says the Local Government: Municipal Property Rates Act places an obligation on municipalities to adjust property valuations whenever there is a significant increase or decrease in value for reasons other than mere changed market conditions.
Property owners advised to be proactive
Even where a municipality fails to invite submissions, Espach advises owners of affected properties to notify their local authorities of the date when the damage occurred, the estimated repair cost as well as an estimate of how long it will take.
He says the adjustments in the valuation roll can be affected as soon as they are entered into the municipal financial system, thanks to a recent legislative amendment. If the owner is unhappy with the new value, they can lodge an objection.
Owners are advised to continue with their rates payments until the valuations have been adjusted to avoid the risk of other services like electricity being disconnected.
Once the adjustment has been made, the municipality will credit the rates account retrospectively to the date of the event.
If that is impossible, Espach advises owners to engage senior officials at the relevant municipality to make an interim arrangement.
Municipal consultant advocate Werner Zybrands says it can take up to two years to rebuild a shopping centre that suffered structural damage.
It would be unfair to expect the owners to keep on paying rates during that period at the same level as before.
He says where damage was limited to shopfronts and shelves, repairs can be done rather quickly and it should not have a material impact on the valuation and subsequently on municipal revenue.
Municipalities will however do well to show some goodwill by exempting affected property owners for a month or two or deferring their payments until their operations are once again up and running, he says.
Listen to Simon Brow’s interview with Visio Fund Management property director Mike Flax in this MoneywebNOW podcast (or read the transcript here):