Rates change could cause rental chaos

2011-07-18 00:00

JOHANNESBURG — The proposed amendment to the Municipal Property Rates Act recently published in the Government Gazette could sound the death knell for the residential rental property market.

Property experts have said the amendment also represents a serious threat for the rest of the housing market — and could put property prices under serious pressure.

People renting property will probably also have to pay more.

In terms of the amendment a property used to house people other than the owner for financial gain will, in terms of property rates, no longer be assessed as residential property.

What this amounts to is that investors in residential property who let the property will in future be assessed at the much higher business rate instead of the residential rate.

Ben Espach, a property valuer and expert in municipal property taxation, said the amendment would result in a significant rise in property rates.

The property rate for a person letting a Johannesburg property worth R1 million will rise from R372 a month to R1 533. In Pretoria the rate for a property with a similar value will rise from R622 a month to R2 015.

In Cape Town that for a R1 million property will increase from R375 to R935.

Property experts reckon the proposed amendment could lead to at least two worrying scenarios.

First, investors who bought property to let could flood the market with their properties because the additional expense no longer makes it worthwhile to let the property.

Someone in Pretoria letting a R1 million house receives between R6 000 and R7 000 in rent. If he has to cough up an additional R1 400 for rates, his yield is certainly no longer worthwhile.

Such units could swamp the property market, which already has a significant oversupply of houses. Prices would come under pressure.

Second, owners could try to pass the rate increases on to tenants, making rentals unaffordable. Many households are forced to rent these days because they can’t afford to buy.

Dr Andrew Golding, chief executive of Pam Golding Properties, said the amendment comes at a time when the residential property market is staggering under a profusion of negative factors and regulatory issues.

— Fin24.

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