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Municipal rates

Municipal rates to drop?

Article By: Pam Golding Intellectual Property

Wed, 10 Jun 2009 08:12

We are coming up to that time of the year when administered costs once again start stretching the rand in one’s pocket. Electricity charges will shock and, no doubt, household rates will increase once again. Municipalities around the country will be sharpening their pencils as they seek more and more income with which to cover the current boom in infrastructural spending. The race to finish developments in time for the Soccer World Cup next year will no doubt produce a rash of over-runs, budget deficits and cash flow calamities.

For homeowners, the annual rates rip-off will evoke the usual acrimonious debate. But property is an easy target. The fact that imposing charges on property owners (and no one else) is an imperfect system of funding public facilities is simply ignored.

Cape Town will be an especially interesting focal point. Not only has the Democratic Alliance retained control of the city but it now holds sway over the Province. Much has been promised by the DA in terms of improving the running of the Mother City following the much criticised term under the control of an ANC majority during which charges of corruption, nepotism and mismanagement ran wild. And make no mistake; the new centurions will have their work cut out to balance the books. Given the current war of words between the two political parties, the DA can’t expect too much in the way of Central Government handouts.

New valuations on 1 July

But to return to the rates issue. The Cape Town Municipality has given notice that it intends to execute a new General Valuation (GV) on 1 July this year. But the current valuation carried out in 2006 has still not been monitored by the Province as required by Act 6 of 2004 (nor have any other municipalities in the Province). It has been reported to the MEC for local government that the City of Cape Town did not comply with the Act regarding the accuracy and other issues of the 2006 General Valuation.

The City Valuer has acknowledged in his internal audit that the GV failed to meet the least rigorous standards of accuracy and according to an independent audit of properties sold in the city, half were overvalued and half undervalued.

Professional valuer Peter Meakin: "Standards of valuation accuracy which are required by the International Association of Assessing Officers are defined, in layman’s terms, to be within five to 10 percent of the actual selling price at the valuation date. That is if the City adopts a 7.5 accuracy ratio then properties which have been sold at the valuation date for R1-million should have an average municipal valuation of R925 000 if they have been undervalued and R1.075-million if they have been overvalued.

Margin of error 4.4 times worse than target

An independent audit of all of the sales that took place on 2 July 2006 showed a margin of error of 4.4 times what the City was aiming for. "It beggars belief that the City Valuer certified his own roll with these margins of error."

This means that the average rates payment for a house which had sold for R1-million is now between R2200 and R4811 per annum after deducting rebates. This is a subsidy of R2611 for undervalued properties which sold for R1-million and the total subsidy is calculated by the independent audit at R650-million in favour of undervalued properties over the four years’ life of the 2006 General Valuation. It is estimated that in the 2006 GV some 350 000 properties were undervalued. The 2006 valuation process was widely criticised at the time and it appears obvious that there is a fundamental flaw in the methods and systems used.

But the big question is: what can Capetonian ratepayers expect in July this year? Take the simple issue of objections, which are called for under the Act. Obviously, owners of overvalued properties will object – while the undervalued property owners will keep their heads down. And can they even be identified?

Can we suggest what goes up must come down?

Of course, property valuations for the purpose of levying rates are one thing; the actual cents in the rand make up the property owners’ levy. In the 2006 valuation, many property owners observed a narrowing of the gap between municipal and market values as the system used collated current selling values at that time. Will this criterion be used again? If so, will the municipality take into consideration that house values have fallen 14 percent in real terms since the 2006 GV? Since virtually all residential property owners have suffered this decline in the value of their primary residences, will it play a role in their rates bill?

Can we suggest what goes up must come down?

Published courtesy of Pam Golding Properties Intellectual Property magazine


Article from: Pam Golding