More Pain Anticipated for Property Owners

Property owners who are still adjusting to the recent spate of interest rate hikes, need to further tighten their belts as new municipal tariffs come into effect on 1 July 2023. Property owners pay rates and taxes to municipalities for the maintenance of roads, street lighting, storm drainage, pavements, refuse, sewerage and firefighting. It is estimated that rates which are charged based on property values have been well above inflation across South Africa, between 11% and 14% on a compounded basis over the past 10 years. The inflation rate has averaged about 6% over the same period.

The South African Property Owners Association (SAPOA) published a report tracking property costs and found that property owners utilised up to 42% of the total (rental) income generated to pay municipal costs during the six months that ended in June 2022. In other words, if property owners generate R100 in rental income, approximately R42 is paid to municipalities. According to the report, in the first six months of 2022 total operating costs grew by 11.2% while the income property owners generated lagged, growing by 6.7%.

The table below indicates the proposed utility increases, with eThekwini residents taking one of the biggest knocks. Please note these rates are subject to change as all electricity tariffs need to adhere to the National Energy Regulator of South Africa (NERSA) tariff guideline.

In addition to the above costs, commercial property owners are often required to provide backup electricity and water supply to tenants.  It is a vicious cycle of costs that property owners must endure to keep tenants happy and be compliant with municipal requirements.

A recent survey by Debt Rescue showed that 77% of respondents believed electricity had become unaffordable and a staggering 89% said it will have a significant impact on their budgets. 40% of those polled indicated they could not afford another increase. According to the report, 61% of respondents had invested in energy-efficient appliances; 29% had switched to prepaid electricity in an effort to reduce their consumption and 16% had done solar conversions.

South African consumers remain under severe financial strain, and one wonders when we will see the light at the end of the tunnel!

Aneesa Khan

Head: Finance and ICT

Sources:

www.BusinessTech.co.za

www.debtrescue.co.za