House are shown along the beach in Muizenberg, Cape Town. Picture: ISTOCK
House are shown along the beach in Muizenberg, Cape Town. Picture: ISTOCK

The Mother City’s 870,000-odd registered property owners should soon know what their new municipal valuations are. More importantly, they’ll know whether the City of Cape Town has done a better job than Joburg to ensure that its three-yearly increases are market related.

Joburg residents were up in arms when the council released its general valuation roll for public scrutiny in February 2018 — five years after the city’s last valuation roll was published in 2013. Many property owners were hit with what appeared to be disproportionately large valuation increases, and the wrong values were assigned to at least 8,000 properties — mostly commercial buildings and blocks of flats.

Industry players at the time blamed valuation errors on the city rushing its valuation process and using inexperienced assessors. There was also a view that in some cases property values may have been artificially inflated to line the city’s coffers.

ValueCheck executive director Andrew Watt, who co-founded the company in 2018 to provide municipal valuation data to property owners and assist with review processes, says the City of Johannesburg received more than 50,000 objections from ratepayers last year, many of which are still awaiting an outcome.

Watt says a recent analysis by ValueCheck indicates municipal valuations for residential properties in Joburg increased on average by 35% (from 2013 to 2018) while actual market values only increased an average 23% over the same time, as measured by Lightstone’s house price index.

Moreover, several Joburg suburbs were penalised with municipal valuation increases exceeding 60%. These include Benmore Gardens, Parkmore, Craighall Park, Houghton Estate, Victory Park and Greenside. Even lower-income suburbs were slapped with excessive increases — homeowners in Alexandra East Bank, where the median price is just below R800,000, saw municipal values surge nearly 83% on average.

Cape Town’s valuation system and property data are regarded as the best in the country
Ben Espach

Watt argues that while the city increased the rebate value for residential properties from R200,000 to R350,000 and kept the cent-in-the rand tariff unchanged to mitigate disproportionate increases in valuations, the net result for many property owners was still a large increase in their monthly rates bills. For instance, the monthly rates increase on a home valued at R2m averaged 28.8% when the new valuation roll was implemented on July 1 2018. For properties valued at R5m, the increase amounted to 32.7%.

Watt says the new general valuation rolls to be released in Cape Town, Pietermaritzburg and Polokwane could produce similar discrepancies. "So it’s crucial that property owners in these municipalities ensure that their new property values are reasonable and that they follow the right process if they have grounds for an objection."

SA municipalities are all obliged to review the valuations of the properties that fall into their taxation nets at least once every five years under the Municipal Property Rates Act. Monthly municipal rates bills are then calculated using a cent-in-the rand tariff based on a percentage of the total market value of the property (land plus buildings). Each municipality sets its own tariffs, but they differ for residential and commercial properties.

Mike Greeff, CEO of Greeff Christie’s International Real Estate, says municipal valuations should be market related and therefore in line with what a willing buyer is prepared to pay. An incorrect municipal valuation will result not only in an additional rates burden, but can also affect a property’s resale prospects. Greeff says a lower valuation is similarly problematic, given that it can translate into lower offers being made on your property when you sell.

What it means

Property owners must follow the right process if they want to object to valuations

Municipal valuations are based on recent property sales in a particular area, he says. "Physical inspections of individual properties are only undertaken by the city when the information on the roll is doubtful or when extensions or changes have been made to the property." He encourages homeowners who believe their new municipal valuations are unreasonable to get an experienced real estate agent to provide a market-related valuation, which can be used to support a review application.

Ben Espach, a professional valuer and director of industry watchdog Rates Watch, doesn’t expect the City of Cape Town’s new valuation roll to produce any real surprises or disproportionately high increases. "We don’t believe there is any cause for concern as Cape Town’s valuation system and property data are regarded as the best in the country." The city has also adopted a three-year review process to minimise any potential shocks. Espach adds: "Besides, when municipal valuations were conducted in July last year the Cape Town housing market had already softened. So new valuations should reflect these changing market conditions."

Cape Town property owners will only be able to lodge an objection to a new valuation once the city publishes its new cent-in-the-rand tariff, which they should receive in July. The objection process closes on August 30. Owners then have 30 days from the date of notice to appeal the outcome.