So how does the municipal value of a property affect its rates?

In Port Elizabeth, South Africa the local authority known in SA as the municipality collects rates, along with other utility fees. In accordance with its mandate, it budgets an amount to be collected via rates and this, in turn, is allocated based on the valuation of the property less R15,000 * by a billing factor.

This system is fair but it is fraught with technical challenges. Firstly, how does one accurately value a home without a site visit by a valuer? A so-called desk top valuation can only provide a guesstimate at best. The solution is to try to determine the valuation based on area parameters, but we all know that no two properties are the same.

By the local authorities challenges aside, how does this affect the person in the street, the person who ultimately must pay these rates calculated by this system?

Now many property owners are only in passing aware of the municipal value of their property. After all, the valuation roll of the municipality has for many been the least likely place for them to visit. then again we all got the letters as rates payers which informed us what the proposed 2017 value of our homes would be. At this point, many would have been quietly satisfied that the municipality recognised so much value in their home when others were being so skeptical.

Some homeowners may have questioned how the municipality came to the adjusted values. There has also been a number of objections leveled against the increase in municipal values. This also must be seen in context. the last valuation of also very much a guesstimate, which was also very high.

So imagine Mr. H (a hypothetical land owner) who owns a home in a quiet leafy suburb, upper middle-class suburb – inhabited mostly by higher-income individuals. He bought his home in 1981 for R250,000 and done very little to it save for a few running repairs. In the interim, the neighbours sold and the new buyers gutted and renovated, resulting in the average sale price in the area rising to R1,8 million, while his home would likely only be sold at R1,3. So when the 2013 valuations were done he was happy that municipality valued his home at R1,750,000 and smugly remembered those who had thought so lightly of his home. At this assumed

At this assumed value the rates on this property would be R1,609.06 (i.e. R19,308.82) instead of the R1,191.73 monthly or R14,300.77 annually. This means that not getting a valuation and opposing the municipal valuation cost him R5,008.82 more per year and since it stays in effect for 4 years he has lost approximately R20,035.28.

But then the municipality in 2017 applied a substantial assumed value increase, which means that they now assume that his property is now worth R2,054,325, despite an economy in recession, Port Elizabeth being a factory/holiday town, record unemployment, you get the picture. As an agent, you know that capital growth has been underwhelming and that trend is not likely to change. Yes, the municipality is being better run but that will not have that greater effect when the economy is down, instead it might ameliorate the fall in values but growth will be subdued. If we got 5% we would be happy, we have simply not seen these kinds of growth.

As an agent, you know that capital growth has been underwhelming and that trend is not likely to change. Yes, the municipality is being better run but that will not have that greater effect when the economy is down, instead it might ameliorate the fall in values but growth will be subdued. If we got 5% we would be happy, we have simply not seen these kinds of growth.

So Mr H’s house four years later has fallen back with its maintenance because he simply has not had the cash for needed upgrades. So given that he has a great address, is he had to sell now, he would be lucky to get R1,450,000 (an 11.54% increase, although it is more likely that it would be closer to 5% i.e. R1,365,000 – but let’s be positive).

At the new 2017 valuation of R2,054,325; his rates at the old tariff would have been R21,743.28 annually or R1,811.94 per month i.e.  R202.88 per month (or R2,434.56 per year. But then one considers the increase in the billing factor. So now, Mr. H has a home which the valuation roll says is worth R2,054,325, on which the new rates are now higher. So annual rates are now R22,695.65 (R1,891.30).

Now let’s assume that if he sold now he could achieve an optimistic price for his home at R1,450,000, this would be the market value and which should be the same as the municipal valuation. If the municipal valuation was correct, the rate would be R15,970.12 or R1,330.84 monthly. If Mr. H, keeps the home for the next 4 years at the incorrect municipal valuation he will be overpaying by R6,725.53 per year i.e. R26,902.12 over the full four years. Incidentally, one cannot ignore the cumulative effect on an incorrect municipal valuation and increased rating factors.

This post is not trying to make a social comment on the valuation system or the rating tariff – the real lesson is that the owner of a property can cost him or herself thousands annually if they fail to get a proper valuation of their property and oppose the municipal valuation in term of the Act. Omitting to act could be costing you thousands and you are not even aware of it.

Omitting to act is costly whether you know it or not.

Get a valuation as a starting point and go from there.

NOTE: All facts are fictional and the amounts are purely for purposes of illustration and the correctness of which is not guaranteed.

 

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Blog at WordPress.com.

Up ↑

%d bloggers like this: