Municipal increases ‘to hit property owners hard’
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SOUTH African municipalities are set to increase charges by double digits in the coming months, hitting property owners and tenants hard.
Credit bureau TPN said yesterday that municipal charges have escalated faster than the Consumer Price Index at a time of rising Covid-19 infections and unemployment.
TPN chief executive Michelle Dickens said rapidly escalating municipal charges, coupled with the rising cost of electricity and the increased cost of private security, had made property occupancy increasingly costly, particularly for low-income earners.
Dickens said the increase would not augur well for the country’s economic recovery.
When a household is spending a growing proportion of its monthly income on housing, there is less disposable income available to be spent on consumer goods, which, in turn, impacts gross domestic product (GDP), Dickens said.
“At the same time, these growing costs will have a negative impact on commercial property owners. In the long term, these runway charges will affect the property sector’s ability to be sustainable,” she said.
Experian South Africa’s Consumer Default Index released last week showed that consumer debt surged to R1.9 trillion, with first-time defaults of R20.4 billion, from January to March.
Dickens said the quality of municipal services has deteriorated. Last year, the office of the Auditor General reported that only 20 of South Africa’s 257 municipalities received clean audits for the 2018/19 financial year.
According to the Department of Planning Monitoring and Evaluation Covid-19 Municipal Survey Results of June 2020, several municipalities were starting to find it increasingly difficult to deliver water, sanitation and electricity to communities.
The South African Cities Network said municipal charges accounted for a growing proportion of household income, with an average bill ranging from R1 425 for lower-income households to R6 119 for higher-income households.
The network said electricity consumption comprised between 42.3 percent and 54.7 percent of the bill, while water cost between 16.7 percent and 28.2 percent.
In April, Eskom implemented a 15 percent price hike after the North Gauteng High Court ordered that R10bn be added to the utility’s allowable revenue from customers in the 2021/22 financial year.
Dickens said the increase in costs not only impacted property owners but also tenants, given that in recent years municipal charges, even for sectional title properties, have increasingly been passed on to tenants, with new lease agreements now typically including itemised charges.
He said the affordable rental market would be particularly hard hit by these growing charges, because it would be hard to pass a R300 sewage charge on to tenants who were paying rentals in the region of R4 000 a month.
Dickens said because of their compounding effect, escalating municipal charges represented significant risk for landlords. “Unless the property was bought at a discount, these escalating charges are literally eroding property investment profitability.”
Dickens said the escalating rates had not been accompanied by a simultaneous improvement in services.
She said inaccurate municipal invoices and interest charged on these invoices were exacerbating the challenges faced by property owners and their tenants, adding that in previous years, rental escalations, typically in line with inflation, had come under pressure as a result of low GDP.
“The Covid-19 pandemic exacerbated the situation, given that most people’s incomes have not grown in the past year, with the result that rental increases have been very low. In some instances, escalations have even morphed into negative escalations,” said Dickens.
“Persistent load shedding, and the inability of many municipalities to restore power after load shedding due to faulty infrastructure, was adding to the frustrations of property owners and tenants.”