South Africa

Coming to your Joburg household: Make-believe valuations

By Sipho Hlongwane 8 June 2012

The ratepayers of Johannesburg could be on the cusp of a massive double squeeze – rate hikes could rise unrelentingly, while the value of property could devalue as a response. This is a problem that was created largely through bad management. The irony is that the city government will be strangling the goose that lays the golden eggs: the city’s middle-income households. By SIPHO HLONGWANE

The city of Johannesburg’s valuations department is currently compiling a supplementary valuations roll for 2012. According to the Democratic Alliance, some of the valuations on the 83,000 properties that will go on the roll are way too high because they are being determined at the 2008 rates without taking into account that a recession happened after that and therefore property value went down.

The DA’s shadow member of the council for municipal public accounts, John Mendelsohn, said: “The sting, a painful one indeed, is that the valuations department now has not just inflated, but hyper-inflated, property values from their 2008 values (the date of the last general valuation) to levels which bear not the least resemblance to the current market values.

“The 2008 values related to actual property values at the height of the property boom. The values now being assigned, according to reports reaching me, vary from 75% to 150% to 300% above the 2008 values, ignoring the fact that from 2008 property values actually dropped and are only now beginning a slow recovery to 2008 levels,” Mendelsohn said.

The result of this will be that many property owners will find themselves paying rates that are far higher than the value of their property.

In order to successfully reverse a wrongful valuation, property owners need to submit a formal letter of objection along with the supporting letter of an estate agent who operates in the area.

Though this situation could be the result of incompetence on someone’s part, it is part of a trend where Johannesburg squeezes middle-income households in order to try and fill its empty coffers. In May, the city decided to roll out a paid parking system, which had been in place in the city centre, into the northern suburbs. The affected areas include Rosebank, Parkview, Sandton, Greenside, Linden, Rivonia, Craighall Park and Northcliff.

Understandably, a lot of people were very unhappy. The residents of Parkhurst threatened to take the city to court because they felt they were not sufficiently consulted about the new system. The city has been accused of unilateralism and its actions indicate in glaring fashion where its officials believe the cash in Johannesburg lies.

The city faces a massive cash problem that has the potential to affect everything from the cost of living to the price of property in the city. According to government ratings agency Ratings Afrika, Johannesburg is the most financially unsound of the eight metropolitans in South Africa. Due to the billing crisis, the city cannot raise enough revenue to meet its short-term liabilities, and thus its long-term financial stability is under threat.

Johannesburg suffered a net negative cash flow of R675-million after capital expenditures last year. It had to borrow money to cover operating and capital expenses.

Until 2009, the city enjoyed some of the cheapest residential and industrial rates in the country, said Citydex chief researcher Thato Molewa.

“Joburg has the biggest tax base of both residential and commercial customers. It can spread the load more broadly. Joburg property values (per square metre) would be lower than Cape Town and Durban on a supply and demand issue. There’s much more land in Joburg, therefore it is cheaper. The density of development is also lower in Joburg, apart from the CBD. Joburg is just a big urban sprawl.

“Around 2009 there was a big property revaluation exercise. This saw a lot of properties increase dramatically in their valuations and the middle class would have been hardest hit, but I don’t think the rates (per R1 of value) increased. What you pay in rates is a function of two things: the value of the property and the rate at which you’re charged per rand of the value of the property,” he said.

Even though the middle-income households in Johannesburg probably subsidise the lower-income households to a greater degree than they do in metros like Cape Town and Durban, Molewa said he didn’t believe this was because the city is directly targeting middle-income people.

“The lower middle class are also squeezed because they don’t qualify for more free basic services than the poor, but they are probably paying some rates and services.”

The Johannesburg municipality earns more money from services charges like water and electricity than it does from property rates, due to the number of middle- to upper-class households that use these services.

According to the city budget implementation plan for 2012/2013, electricity alone is expected to contribute to 38% of the revenue. Property rates account for 17% of the money. This serves to highlight why the billing crisis is such a huge problem – the largest contributor to the city’s revenue is being compromised through incompetence and bad management.

The definite trend is towards higher rates. In 2010, residents had to swallow a 59% rate hike in total. The valuation roll could contribute to that even more in 2012, and it’s the lower-placed households who will feel the full force of this hike.

If the city does not sort out its billing problem, it will continue borrowing to finance its day-to-day operations. There is a very stark example of where that sort of thing ends up. Heard of Greece’s recent financial problems? DM

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Photo: Johanesburg (Greg Marinovich)


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