PROPERTY RATES BILL
An Estate Agent’s Concerns
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However, the valuation methodology leaves the option of interpretation to be varied from one valuer to another and across local authorities. This problem is also exacerbated by the limited number of qualified valuers within the Council.
We are also seriously concerned that many aspects of this Municipal Rates Bill need urgent and extensive surgery before being released on the public.
According to the Bill, levying of rates will be applicable to the value of the Improved Property, Land and Buildings – as a single value. As Estate Agents, we can identify properties that range between R1750 per square metre and R5500 per square metre to build. Our concern is with the lack of applying proper methodology. The absence of a prescribed method needs to be revisited.
Land value is also highly subjective and varies by tens of thousands of Rands, according to many factors such as area, position, amenities, main roads and security within special environments. The current system in Gauteng of levying rates is based on the site value and begs the question – how then does the Bill propose to limit the increase in the rates to be levied on the improved value, when the disparity in values are so profound.
The Bill also provides for additional rates to be levied - perhaps necessary to keep services functional - but dangerous to the economic planning of an home owner who has to balance income and expenditure when committing to the purchase of a property.
For example, the current rates in the Johannesburg Metro Council are based on SITE VALUE x GENERAL TARIFF x REBATE at 0,088c/rand x REBATE of 58%, minus 0,0515 equals the RESIDENTIAL REBATE TARIFF = 0,0373c.
The equivalent if land improvements only is 30% of the total value = 0,0373 / 0.30 = 0,1243.
To retain a similar cost factor to the current rates, the new Bill will have to adjust the tariff to reflect the fact that it is being applied to 100% of the property value and not the site value only. What mechanisms will Council employ to retain rates parity?
This makes the system very vulnerable to changes in the market value.
We suggest this is a function of a sworn appraiser / qualified valuer in conjunction with an estate agent. Again I stress we are concerned that this system should not impact negatively on the market and could result in many homeowners facing economic hardship – without question this is disastrous for a major sector of our national economy.
Yet another concern is arrear rates that place a huge burden on the Council. The Jo’burg Metro Council is currently struggling to perform daily tasks, let alone find time to inspect each and every property.
We suggest a solution to be responsible outsourcing of a mass computer-aided property valuation system that would take care of the problem of the Bill not defining valuation methods.
For the initial valuation (base value of each property) council should outsource to a sworn appraiser in conjunction with an estate agent (who are aufé with true market values) thereafter properties will take on the annual increase in line with the capped. I don’t think there is a "quick-fix’ solution around this.
The deficits currently run into billions of Rands, placing undue time delays and huge cost implications on our industry and it’s stakeholders.
In the explanatory notes (2.28) reference is made to property being excluded from the rates base. This is not acceptable. All properties should be included in the rates base and then exemptions of varying amounts be granted to these specific properties as and when deemed economically viable to do so.
This should also apply to rural land and agriculture. They should be inclusive in the rates base but with "close-to-zero" rating by way of large rebates – one has to be mindful of when this land becomes viable in the future.
Section 8(3)(d)(e) – Agricultural property
Where agricultural property receives no benefit from municipal services, and there is no provision in rural areas of waterborne sewerage, electricity or water, street lights, roads, pavements or cleansing facilities. It is therefore unreasonable to expect landowners to contribute rates and receive nothing in return.
Suggest inclusive with large rebates as I mentioned in the above paragraph, one must always be mindful of future development.
These can be dealt with similarly as currently applicable to pensioners.
Section 8 – Differential Rates
There is no reference to schools, institutional or properties used for religious purposes, all of which should form part of the rates base. A special method of rating these properties will have to be adopted on a national basis.
Here again in order to simplify and have only one system. A solution could be to put them onto the system apply huge rebates so as not to over burden schools in poorer areas.
Sections 9, 22 and 40 – Sectional Title Schemes
The entire property industry welcomes the provision of individual rating of units within a sectional title scheme. There are currently severe problems with arrear levies. The provision to rate individual units in a scheme will be beneficial to the individual owners in a scheme as they will no longer be liable jointly and severally for a defaulting owner’s liability.
Thus making investment in a sectional title safer. Banks will face less lending risk, prices will rise and inner cities will become desirable investments again. This immediately would change the face of would be "Hillbrows" in northern suburbs of Johannesburg, Gauteng.
However there exists a problem:
The valuation of individual units as provided for in terms of Section 39 and 40 will prove to be extremely difficult. This will require a physical inspection of each unit in a scheme to determine its market value – the position and improvements and exclusive use areas and value of the common property will all have to be taken into account.
As the value of a unit must include its undivided share of the common property, it follows that the common property must be valued. How then will a valuer treat the value of the common property? This problem will be compounded by the fact that there are over 500 000 sectional title units countrywide and not sufficient valuers to perform the task – unless a specified approach to Sectional Title Scheme values is embedded in the Act.
Suggestions:
The concept of market value for each unit should not be applied to a sectional title scheme. The existing method of valuing a scheme as a whole and allocating the amount due by each section in accordance with the participation quota should be retained. The amount due by each owner could then be easily calculated and debited to the individual owners. This will avoid having to value approximately 500 000 units countrywide individually and would simplify the whole process as this method has been the accepted method of apportioning the Rates Bill between the owners of the various sections in a scheme since the sectional titles Act was passed in 1986.
It must be clearly stated that Sections 37(1)(a) and Section 51(2) are no longer applicable and that the provisions of Section 51(3) of the Sectional Titles Act, which provides that for separate rating of a unit if required by law now applies.
Section 17 – Limits on annual increases.
The Minister is given the power to set limits on the percentage by which rates on property may be increased.
Problem:
This limit is not capped in any way and there is no method of control or objection should this limit be unreasonably applied.
Solution: Capping
This limit needs to be capped to no greater than the CPI, subject to a maximum increase, or at the same level of inflation rate – we would be happy with either.
Section 48(2)(a) – Right of Appeal
There are considerable problems with normal postal delivery, to avoid any disputes, notices should be sent out by registered post.
Section 51 – Composition of the Appeal Board
The use of gender as a selection criterion is unacceptable. All appointments should be made on the basis of competency and practical experience. All Board members should be qualified valuers and the Chairman should have a specialised knowledge of Law, of Property Valuations and the Property Law.
Section 56 – Termination of Membership
There is no clause dealing with absenteeism. There should be an inclusion that any member of the Board absent from more than 2 meetings of the Appeal Board is automatically disqualified from membership of the Board.
Section 35 (1) and Section 65 (1)
This provides for a municipal valuer to have access and inspect any property between 7.30am and 5.00pm.
PROBLEM:
Security is a major problem with many impostors attempting to gain access to homes in the guise of officials. Cape Town experienced many problems during their valuation process. Property owners are fearful of their safety and therefore are unwilling to give access to people who simply wear bibs similar to parking attendants.
SOLUTION:
Property owners, should be notified in advance that there will be an inspection and should be provided with the name, a photograph and ID number of the person who will carry out the inspection, and a contactable phone number to verify that the inspection is in fact legitimate.
Section 44 – Processing Objections.
This section provides for a municipal valuer to consider and adjudicate on his own valuations.
PROBLEM:
There can be no objectivity in a process where the valuer is both the judge and jury. Provision has been made for a final appeal to the Appeals Board, but this does not address the problem of potential conflict that has been created by the mechanism proposed in the Bill.
SUGGESTIONS:
Objections are heard by an independent body that has no connection to the original valuation process. Appeal against any decision is then taken to the Appeal Board.
We look forward to the day when Municipal Councils are pro-active and able to curtail increased costs at the very outset of a homeowner getting into arrears.
There is tremendous hostility as well as fear coming from the homeowners who feel they are being forced into a ‘higher rates’ situation due to the new policy of elevating the local authority to deliver when the services they are getting have seriously deteriorated - some services are being offered less frequently, others have stopped altogether. They believe this is directly due to poor financial management by the Council and unrestricted cost control. Many fear that the system may have an element of a ‘Robin Hood’ syndrome attached to it.
Inter alia one of the very serious outcries is for street name indicators. In fast heavy traffic it is impossible to hold up traffic whilst one searches for a sign. I believe it will avoid accidents.
The Rates Bill will, of course, be based on schedules and regulations and it is imperative that the local Government addresses this in depth, eliminating any loopholes. Thus the way we are going to assess the value of property is paramount. The old adage "the devil is in the detail" aptly applies to this.
Currently rates and taxes are up by 10% to 15% on last year’s tariffs. We might say "but where will this all lead to and where does one draw a line". Well, costs on everything go up every year – inflation runs between 9% and 11%. Some Metros are under-charging. Some not at all. This Bill will find a balance and seek a fair and affordable mechanism that will best serve all concerned. Again I state that annual increases need to be capped to no greater than the CPI, or inflation rate.
We ask that annual adjustments to tariffs should not be passed on when property values increase, and should not exceed the CPI.
We look forward to the day when the Councils are efficient, productive and pro-active. This will be the key to cheaper rates and taxes and then as in the Income Tax Revenue Department, we can truly be Proudly South African.
By implementing technology the Councils need to develop a system that immediately alerts them when a homeowner goes into arrears so that the matter can be dealt with pro-actively. This alone will save them millions if not billions of Rands per annum, in wasted ratepayer costs in recovery and write-offs.
In the current system, tenants can wreck havoc, pay nothing and then leave the owner footing the bill on all their arrears to the Council who demand full recovery or no rates clearance certificate.
We truly need a shake up. In many cases, arrear rates are holding up registrations as we wait months and months before a settlement has been reached between Council and Client in order for us to get a Rates Clearance Certificate.
This, exacerbated by Council not being able to locate files, plans etc has made registrations a veritable nightmare.
The Bill has our blessing, provided fairness and reasonability are the overriding essence, and embedded into the Bill/Act.
The Institute of Estate Agents have given the Committee comprehensive and detailed written comments, point by point, on the inaccuracies and discrepancies in the Bill which we would hope that you will take cognisance of.
I’d like to see the day when Government introduces the socialistic system to replace squatter camps. Where modest little homes are built by the people much like the Kibbutz system in Israel and each settlement is taught how to become self sufficient. The system will stop the growing numbers of street children and AIDS orphans taking to the street. The Ownership by Association Act is promulgated and needs to be given acknowledgement.
The Great African Dream - Home ownership for all – a profound aspiration!
We all accept the principle that communities have to be uplifted and that the role of service providers has led to the wording of the Bill as it stands.
My thanks to Government for this Workshop. A demonstration of true democracy. I am confident that this Bill will bring about parity among the various provinces and ultimately will represent a fair and equitable status quo for all councils and homeowners across the country, ultimately seeking to iron out some of the creases that the current system suffers from through a perfectly fine-tuned Property Rates Bill.
Thank you.