Municipal valuations spark fear of rates hike

Municipal valuation officers doing their rounds in Cape Town have sparked anxiety among property owners who fear that property rates are going to be increased drastically.

A resident of Oranjezicht has claimed that a city valuator told him that property rates would in future be calculated at around R1 000 for every R1 million value.

Under this formula someone living in a house worth say R4-million, would have to pay around R4 000 a month.

Many home owners have experienced exceptional growth in the value of their properties in recent times, but they are now concerned that they could end up with huge rates bills that they will simply not be able to pay.

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But Mike Richardson, city budget director, has been quick to address concerns.

"Valuations were last done five years ago. We estimate the value of property has since (on average) increased threefold.

"So rates will be adjusted in such a manner that on average people whose property value trebled, will pay the same rates as they are currently paying. Those people whose property value increased by more than three times, will of course pay more and those whose property increased by less than three times, will pay less."

"If we find that property values have in fact increased by four times, we will use that as a basis and apply the same principle."

Richardson said the main misconception about the valuation process was that the assessed value determined the amount of rates the city received.

"The process is that the city compiles a budget whereby an amount of income is determined that is needed to "balance the budget" - in other words to equal the amount of proposed expenditure.

"Having agreed on the amount of income needed, the value of each property determines the owner's share of the total. If inflation is ignored, the amount of rates that each property owner will pay will not change unless the property in their area has increased or decreased relative to other areas of the city.

"Similarly, rates for residential properties and commercial properties will not change, unless there has been a different increase in values over the period since the last valuation.

"So, as an example, property prices have increased by three times on average since the 2000 general valuation (GV). A property valued at R300 000 is now valued at R900 000. The current cent in the rand for residential property is 1.183 cents. From 1 July 2007 when the new GV will be implemented, the cent in rand will be 1/3 of the previous amount which is 0.394 cents.

"Owners will pay the same amount of rates if their value is R900 000. However, for a property in a degraded area previously valued at R300 000 which is now valued at R700 000, the rates for this property will be less from July 2007.

"Another property in an area that has become very desirable may have increased in value from R300 000 to R1,2 million. Rates will obviously be more for that property than previously. The above example illustrates simply the principles of valuation for rating purposes.

"The process is intended to ensure equity and fairness of the tax burden by sharing it according to value of property owned. It does not determine the quantum of rates received."

Richardson said owners will in due course be told of the new assessed value of their properties and will then have various opportunities to object to independent valuation boards if they believed such valuations were not fair or reasonable.

  • This article was originally published on page 2 of Cape Argus on March 12, 2006

Article by: Willem Steenkamp - www.capeargus.co.za