LETTER: City of Joburg property valuations will have ruinous consequences

Andy Clay touches on the City of Johannesburg’s fantastical property valuations, but the rates rip-off extends to a rapacious billing model that double-taxes inflation (“Properties are valued in cloud cuckoo land”, March 7). Perhaps Outa should focus on this abuse.     

By July, my (projected) property rates will have increased by 54% (9% per annum) over the last five years, though the consumer price index will “only” have risen 28% (5.1% per annum) since mid-2018. In fact, since 2009 my rates bill has quadrupled, at a compound 10% per annum versus inflation of 5%. This though the value of my property has dropped in real or after-inflation terms.

These absurd increases happen because the city double-dips its chips in the inflation bowl. There are two ways for rates to keep pace with inflation. One is to inflate the property roll annually, aligning it to realised values every few years. Another is to inflate the tax rate, and when the roll is revised reset it to the starting point, to offset inflationary price gains. (As an asset class, residential housing has, on average, delivered low real returns in SA.)

Johannesburg’s method? It inflates the rate annually, and then the property roll every five years but without resetting the rate. Homeowners are thus in effect double-billed, which is why rate increases far outstrip inflation despite the absence of real value growth. The punitive compounding effect makes home ownership increasingly less affordable, shrinks the pool of potential buyers and depresses prices even more.

The municipal valuer believes my property appreciated 30% since 2018. Yes, it should fetch that value within a robust economy, a balanced property market and a functioning state and municipality. But we are not there, even less so a year after the roll was compiled. We are now in recession, the repo rate is up 300 basis points, and load-shedding has become the norm. Our economy is smaller than before Covid-19. Many Johannesburg residents are fleeing. All of this favours buyers, so my home won’t sell at nearly the municipal valuation, if at all.    

The municipal valuer knows full well that property prices haven’t gone anywhere. The roll’s total market value is only up 12% since 2018; with additional units, the average increase is less. Many homeowners will likely see even lower increases, if those at the upper end report far higher increases. But with our economic scenario it is folly to believe the more expensive segment has outperformed.

Clearly, the city’s valuation and rating methodologies are not based on economic reality, or fairness, but on who can be squeezed, and who is more likely to pay.  As with all things expedient and exploitive, this practice will eventually have ruinous consequences, for both homeowners and the city.  

Chris Veegh

Johannesburg

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