Increase in valuation roll hard to justify for Joburg residents

The proposed increase to the general valuation role in Johannesburg is hard to justify given the state of the city and poor service delivery, which means residents derive little value from increased taxes.

The City of Johannesburg estimates that the value of the residential and commercial property base in the city has risen from just over R1.4-trillion in 2018 to R1.59-trillion over the past five years. Based on this estimate the city intends to implement a 12% increase in property rates and taxes from July 1.

This double-digit increase in property rates and taxes comes at a time when property owners have been hit with a barrage of above-inflation price increases. In 2022, electricity costs increased by 7.47% (after a 14.59% increase in 2021), and water and sanitation services increased by 9.75%, while interest rates rose at a rapid pace as the SA Reserve Bank acted to bring inflation back within its target range.

While electricity, water provisioning and property rates and taxes form the municipality’s main source of revenue, residents of SA’s financial and economic hub will find it difficult to rationalise the proposed increases. Revenue from rates and taxes should go to pay for a wide range of public services, from the maintenance of roads and traffic control to providing public parks, libraries, clinics, recreation centres and other similar services for the public.

Yet, despite paying more to bolster the city’s coffers, residents have to deal with declining levels of service delivery and poorly maintained or non-functioning municipal infrastructure. Numerous traffic lights do not work in Johannesburg, even outside load-shedding periods, with the homeless now becoming self-appointed traffic controllers, taking the initiative to ease congestion in the absence of metro police officers. Public spaces are largely unkept, dilapidated and often unsafe. Residents must navigate potholed roads and endure prolonged water and electricity outages due to faults.

To make matters worse, residents are being subjected to a political merry-go-round at the city council, bringing into question whether elected representatives have the ability to deliver reliable services due to the tenuous power-sharing deal struck with a coalition of minority parties. And it remains unclear what plans the new council has to tackle the energy crisis in Johannesburg after the previous mayor’s energy plan was shelved.

The result for Johannesburg property owners is a property market that has struggled to deliver property growth in real terms after inflation for a number of years, and 2024 looks to be no different. 

According to data from the recent Lightstone residential property indices, Gauteng had the lowest year-on-year property inflation in the country at just 2.9%, and Johannesburg was the municipality with the lowest figure at just 1.2%. Within inflation projected to be in the region of 5,4% in 2024, the numbers speak for themselves.

Based on this rate of property price growth, sellers who bought within the past five years may struggle to recoup their costs or make a profit if they sell now, despite the city’s assertions that property valuations have increased 12%. Moreover, given low economic growth and high interest rates, property prices will take time to appreciate over the medium term.

Property owners can look to Cape Town for evidence of how better service delivery can support house price growth while improving quality of life for residents. While the “semigration” trend continues to drive demand in a region with limited supply, which supports house price growth, most ratepayers also receive value for their taxes as the city uses this revenue to maintain and improve infrastructure and service delivery.

The city has a concrete plan to reduce the burden of load-shedding on residents, which includes an innovative model that will allow Cape Town residents and businesses to receive cash for self-provisioned power fed into the local electricity grid.

In contrast, the mix of factors at play in Johannesburg makes the updated valuation roll proposed by the municipal council particularly objectionable for property owners living in the country’s most populous city, home to the “richest square in Africa” and the so-called economic powerhouse of SA.

Ultimately, the proposed increase in rates and taxes would be easier to swallow if residents received better services, but based on current levels of service delivery and house price growth in real terms, property owners could make a case for no increase. However, this is unlikely given the city’s need to increase revenue, especially amid low collection rates. The city aims to target 90% compliance in the financial year ahead. As such, all property owners will be asked to pay higher rates.

Beyond adding to the financial strain that all consumers experience, these increases could have other implications for homeowners, particularly those who intend to sell. If this is higher than the actual property value, a homeowner who sells a property below the municipal valuation could experience issues with the SA Revenue Service (Sars). Sars will typically query a property sale when the selling price is less than the municipal valuation to ensure these assets sell at fair value.

It is important that all property owners check the updated municipal valuation roll to ensure their property has not been overvalued. Homeowners have until March 31 to lodge a legitimate objection. Those who do not object will accept the valuation by default. Property owners should interrogate the updated municipal valuation on their property and make an effort to establish true market value, which an experienced estate agent can assist with.

Despite the challenges faced in Johannesburg, anecdotal data from Jawitz Properties suggests that buyers remain active in the market. However, buyers across all price levels are price conscious and value-driven due to pressures on disposable income and low consumer sentiment, and are spoilt for choice with a strong oversupply of properties.

Sales that are being done reflect a matching of value-driven buyers and sellers who are prepared to accept the real market value of their homes.

• Jawitz is CEO at Jawitz Properties.