South Africa’s biggest cities are killing their own economies

 ·15 Jun 2023

South Africa’s biggest cities have been hiking rates above inflation for far too long – to the detriment of their own local economies.

This is according to the South African Property Owners Association (SAPOA), which has raised concerns over the levels of rate hikes planned for 2023.

Not only will the coming rates feed inflation, but they also threaten the viability of commercial property tenants who form the bulk of ratepayers in most municipalities, the group said.

SAPOA said municipalities have regularly gone against National Treasury guidelines by hiking rates by over 10% per annum in recent years – far higher than the annual consumer price index (CPI).

For example, water and property rate prices rose by a substantial 140% from 2010 to 2021, almost double the rise in the general price level.

SAPOA said that, beyond the obvious impact on residents and businesses, the unsustainable increases in property rates have impacted the South African Reserve Bank’s ability to deliver on its constitutional mandate by adding upward pressure on inflation – increasing costs and having damaging consequences on the property sector.

Property rates are particularly egregious.

Research from the group showed that property rates are becoming increasingly important in supporting municipal revenue.

“Property rate income rose by a substantial 174% between 2010 and 2021, much higher than the 72% increase in CPI and the 156% rise in overall revenue – thereby compensating for shortfalls on other revenue streams,” it said.

“As for spending, aggregate municipal expenditure rose by 165% from 2010 to 2021, significantly higher than the rise in national government spending at 128%.”

“Employee costs – an increase of 180% – and electricity purchases – a rise of 216% – represent the main drivers behind the upsurge in municipal spending,” said SAPOA.

Ultimately, property rate hikes add to the already strained property sector, it said, which deters investment, and, thus, impacts a municipality’s revenue base.

According to SAPOA, when focusing only on the metropolitan municipalities, all recorded increases in property rate income substantially exceeded the risk of inflation over the 2010-2021 period – showing that property rates are excessive, all while ratepayers faced cost increases well above the general rise in prices as measured by CPI.

Big city offenders

SAPOA said that various municipalities have suffered differently due to tariffs levied and changes in the valuation roll.

Some metropolitan municipalities witnessed sharp increases in tariffs (those with lower increases in valuation rolls), while others reported substantial increases in valuations (those with lower increases in tariffs).

“Nonetheless, what ultimately drives the impact of property rates is the level and increase in the cost faced by ratepayers,” said SAPOA.

SAPOA commissioned Oxford Economics to analyse and form a report on the impact of property rates in South Africa.

It found that five of the biggest metropolitan municipalities in the country have hiked rates so high that it is damaging their local economies as well as the national economy.

The municipalities include:

  • City of Johannesburg
  • City of Tshwane
  • City of eThekwini
  • City of Cape Town
  • City of Nelson Mandela Bay

“SAPOA stresses that it is unconstitutional for municipalities to continue levying rates that unreasonably prejudice national economic policies, economic activities across municipal boundaries or the national mobility of goods, services, capital or labour,” it said.

New rates

Updated property rates for South Africa’s major cities are coming into effect from 1 July 2023.

The updates come following the general valuation roll (GVR), which is a process that takes place every four years to update property values. These updated values are used to determine the rates that residents need to pay for their homes.

Municipal property rates are calculated by multiplying the market value of a property, which is determined by the valuation roll, by a specific percentage amount determined by the municipal council.

The updated rates for the 2023/24 financial year are largely below current inflation levels (6.8% in April) except for eThekwini and Buffalo City. Other rates are in-line with expected inflation in 2023, while the City of Cape Town will see rates drop slightly:

MunicipalityRate change (1 July 2023)
City of Joburg2.0%
City of Cape Town-1.1%
Nelson Mandela Bay5.0%
Buffalo City8.0%

Rates for electricity and water are far higher than inflation, however, while refuse and sanitation rate hikes are broadly in line with CPI.

Read: Tough times for shopping malls in South Africa

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