Rates anomaly needs careful scrutiny

inlsa

Andrew Layman, CEO of the Durban Chamber of Commerce and Industry.

The Municipal Property Rates Act of 2004 was promulgated after a lengthy time during which its provisions were hotly debated, mainly as a result of the political opposition’s suspicions that it was designed to provide municipalities with the mechanism by which rate-payers could be fleeced.

The text of the act, however, was quite acceptable in my view, and did not contain any clauses that directly threatened property owners. Indeed, particularly for owners in KZN, where rates had been based on the market value of the land (without any development) and a quite arbitrary estimation of the replacement costs of the buildings, a move to the market value of the entire property seemed to be a favourable change.

I remember someone once remarking that the test of a piece of legislation’s acceptability lay in whether it would be equally acceptable if enacted by the political opposition. In this case, the suspicions of the protagonists proved to be entirely justified.

The act places restrictions on municipalities in terms of the rates increases that they are permitted to impose, but with no interim constraints, and many municipalities had field days as they loaded rates to take advantage of this omission.

The new national system lost even more favour when the first valuation rolls were produced. It doesn’t seem to be very difficult to estimate the market values of properties. Estate agents and other qualified valuators do it all the time, and are very seldom at odds with reality. But in the hands of so-called “independent” valuators, some of which were companies with sound international reputations, the new valuations rolls lacked credibility because they were riddled with anomalies.

Given the fact that rate-payers will always seek to downgrade the value of their properties until they come to sell them, people could not understand the disparities in the values of similar properties even in the same road.

It became clear during the appeals phase that some of these were attributable to error.

The rates assessments for 2012/13 have caused an outcry in Durban. While the increase in the rate randage (the amount to be paid per rand of property value) was modest, owners of some commercial properties have received rates accounts that are double what they were before. A number of others took the trouble to scrutinise the assessments when they were distributed and lodged appeals. But these have not been finalised yet.

Consequently from July 1, the owners must pay the amount on the account, even if it later transpires that it is much too high.

All in all it is a very unsatisfactory state of affairs. If appeal processes are to have credibility, they must be dealt with swiftly, and perhaps this would be the case if the appellant was not required to pay the new rates amount until the appeal was finalised. That the valuation roll is so widely disputed is also a worrying circumstance.

There is a great deal of confusion. It is well known that property has been through a very lean spell and it is difficult for owners to accept that the market values of their properties have increased as much as the valuators have estimated.

Market value is surely the price that the property may be expected to fetch if it were sold now. Yet the valuation process, which is not transparent as far as I can see, seems to take other criteria into account. Property owners would like to know what these are.

The municipality will claim that its total income from rates in the new financial year will not exceed that in the previous year by an unreasonable margin. What this highlights is that the property market is a moving feast in the sense that over time properties in some areas lose value while others gain, and sometimes quite significantly.

Thus, the average increase to be paid by ratepayers is not unacceptable, but those whose increases are unreasonably large have good reason to question the manner in which the values of their properties have been assessed.

* Andrew Layman is the CEO of the Durban Chamber of Commerce and Industry.