The South African Property Owners Association (Sapoa) said municipalities had been charging exorbitant commercial property rates that contravene National Treasury guidelines, were way above inflation, and which had slowed the economies in five metropolitan areas.
Levying rates that prejudice national economic policies, economic activities across municipal boundaries or the national mobility of goods, services, capital or labour, was also unconstitutional, Sapoa said over the weekend.
The association said the increases were not only inflationary, as alluded to by the SA Reserve Bank (SARB) recently, but also threatened the viability of commercial property tenants who form the bulk of ratepayers in most metropolitan municipalities.
Municipalities have regularly increased rates by more than 10% per annum over the past few years, far more than the annual consumer price index (CPI).
Water and property rates prices have increased 140% between 2010 and 2021, almost double the rise in inflation.
“The unsustainable increases in property rates materially prejudices the SARB’s ability to deliver on its constitutional mandate,” Sapoa said in a statement.
“Persistent and excessive increases in property taxes add upward pressure on the general price level, and such cost increases will hold more wide-ranging adverse consequences for the property sector, and the broader value chain,” the association said.
Sapoa’s research showed that property rates were becoming increasingly important in supporting municipal revenue, and were being used to subsidise other declining sources of income for the municipalities.
Property rates income rose 174% between 2010 and 2021, much higher than the 72% increase in CPI, and the 156% rise in overall municipal revenue.
Meanwhile, municipal expenditure rose 165%, much higher than the rise in national government spending at 128%. These increases were driven mainly by municipal employee costs (an increase of 180%) and electricity purchases (216%).
This means administrative charges such as property rates are subsidising higher municipal expenditures like employee costs, electricity purchases, and contracted services.
“When focusing only on the metropolitan municipalities, all recorded increases in property rates income (and commercial and industrial rates income, more specifically) substantially exceeded the rise in inflation over the 2010-21 period,” Sapoa said.
“It shows that property rates are excessive.
“What ultimately drives the impact of property rates is the level and increase in the cost faced by ratepayers. Excessive costs or increases in costs associated with property rates could hold various adverse consequences, and this, in turn, can determine whether such adverse impacts are materially and unreasonably prejudicing section 16(1) of the Local Government: Municipal Property Rates Act 6 of 2004.”
Sapoa commissioned Oxford Economics to produce an economic report on the impact of property rates.
“The report indicates clearly that the five biggest metropolitan municipalities – City of Johannesburg, City of Tshwane, City of eThekwini, City of Cape Town and City of Nelson Mandela Bay – have, over the past years, increased rates and taxes to such a level it is detrimentally affecting the local economy of each municipality and the national economy,” Sapoa said.
Reserve Bank Governor Lesetja Kganyago also warned about the inflationary effects of government institutions increasing their prices above inflation when announcing the Monetary Policy Committee’s decision on the repo rate on May 25.
“We have addressed correspondence to the relevant municipalities, the South African Local Government Association, the minister of finance and the minister of co-operative governance and traditional affairs to commence the engagement process as required in section 16 of the Rates Act,” Sapoa said.
The association said a failure by the municipalities to engage on the matter would lead to disinvestment.