Plea to cap property rates as cities ‘abuse’ tax
Commercial property is one of the sectors that has been hardest hit by the national lockdown
The commercial property sector’s biggest industry body, the South African Property Owners Association (Sapoa), has called on the minister of co-operative governance & traditional affairs (Cogta) to cap the property rates charged by municipalities, saying proposed increases are “extortionate”.
Commercial property — retail, office and industrial real estate — is one of the sectors that has been hardest hit by the national lockdown.
The move to level 3 lockdown regulations is slowly helping SA’s biggest property owners, with foot traffic to malls improving, but they remain in a precarious position as they negotiate rental relief for tenants and try to curb rising vacancies in their portfolios.
Sapoa CEO Neil Gopal said this week that Cogta minister Nkosazana Dlamini-Zuma has the authority in terms of the Municipal Rates Act to “issue a directive to all municipalities to cap the rates”.
“We know the municipalities are in deep trouble for various reasons and we know that they are using property rates as a mechanism to basically fill a hole.
“You can see how property rates are being manipulated and how the act is being abused and how the municipalities are abusing ratepayers, particularly business.”
Gopal said another problem is that municipalities’ draft budgets are “often fundamentally different” from their actual budgets.
Municipalities are in deep trouble ... they are using property rates to basically fill a hole.Neil Gopal, South African Property Owners Association CEO
Estienne de Klerk, South African CEO of Growthpoint Properties, the biggest local real estate group listed on the JSE, and chair of the South African Reit (real estate investment trusts) Association, said the biggest threats to the property sector are the economy and “an onslaught from municipalities on rates and taxes for next year”.
“The increases in rates and taxes are absolutely ridiculous . we have a large retail property that has to budget for rates going up 33% — in this economy. It’s just bizarre. The average across our property portfolio, we think, is going to be in excess of 11%. In this economy, how can these municipalities do this? Our tenants are already under significant financial pressure.
“Due to the Covid-19 crisis, the industry asked the municipalities for relief on behalf of our tenants, but the feedback from pretty much all the municipalities, other than Cape Town and Stellenbosch, was not positive. Most of them declined to reduce rates.”
De Klerk said the move to level 3 lockdown, which opened up most retail operations, brought an improvement in the property sector as a whole — but performance varies from asset to asset.
For example, Growthpoint and the Government Employees’ Pension Fund jointly own the V&A Waterfront in Cape Town, which has significant exposure to hospitality and restaurants, the most severely affected sectors, as well as retail. Retail is improving but the precinct is still negatively affected.
“There’s no doubt we can see it from our collections as well as the feedback from our retailers that things are improving . The property industry has also come to terms with most of the biggest retailers in terms of rental payments, so there’s been good progress. They are starting to pay their rentals and arrears, which is a positive.”
De Klerk said they are seeing requests for rental deferrals in the office and industrial property sectors, but nothing like what has been seen in the retail property market.
“Growthpoint has seen [rental] collections average over 70% for April and May, and for June we have also already received over 70% of billings.”
Des de Beer, CEO of Resilient, whose portfolio includes Mall of the North in Limpopo and Jabulani Mall in Soweto, said metropolitan malls in the bigger cities are “still very quiet”.
However, he said, sales are higher than what is indicated by foot traffic as people are making fewer shopping trips. He said the larger cities are well supported by online platforms, which explains the drop-off in foot traffic.
He said the best-performing properties are those in rural areas and townships, which are “substantially better performing” than the larger malls in cities. De Beer said these centres have been assisted by the government increasing social grants.
Resilient has written off most of the rent owed for the months that tenants such as cinemas, restaurants and ice rinks have been unable to operate, saying it is in the interest of all concerned that these retailers survive.
Morné Wilken, CEO of Hyprop Investments, which owns malls such as Canal Walk in Cape Town and Johannesburg’s Rosebank Mall and Hyde Park Corner, said foot traffic is starting to normalise.
The group, which has a retail vacancy factor of only 2%, said in a Sens statement on Wednesday that the average monthly foot count at its malls is down 24% for June, compared with the same period last year.
This drop was the same as March's, which indicates there has been a stabilisation, because foot counts were down 71% and 39% in April and May, respectively, compared with the same months last year.
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