SA’s commercial property sector, worth an estimated R750bn, has urged local government to introduce rates relief measures to assist landlords and tenants who are suffering severe cash-flow constraints due to the Covid-19 lockdown.
National government departments, banks, landlords, the SA Revenue Service and others have offered forms of relief to consumers or businesses over the past few weeks to help mitigate the economic impact.
To date, only two municipalities — both in the Western Cape — have offered payment holidays to ratepayers: Stellenbosch and Cape Town. Others have yet to come to the party.
That’s prompted the SA Property Owners Association (Sapoa), the industry body that represents most of the country’s commercial property owners and developers, to plead with other local councils to play their part to keep distressed landlords and tenants afloat.
In a letter sent to 44 municipalities, Sapoa CEO Neil Gopal says now is the time to follow the example set by the National Treasury and "go easy on ratepayers".
He notes that about 80% of commercial tenants in SA (retail, office, factory, warehouse and hotel businesses) haven’t been able to trade during the lockdown. "Many are therefore not in a position to pay rentals, which is causing a serious cash-flow problem as landlords are not receiving sufficient monthly rental to cover their costs such as bond repayments, property rates and utility charges," he says.
Gopal has urged municipalities to offer rates relief to property owners in terms of the Local Government: Municipal Property Rates Act. The act makes provision for individual municipalities to grant rates exemptions and rebates in special circumstances. "Clearly, the current situation qualifies as special circumstances", he says.
In addition, Sapoa is proposing that municipalities ditch rate tariff increases for 2020/2021 and prohibit the suspension of electricity, water and other municipal services due to nonpayment for at least the next four months.
Residential property players have added their voices to calls to municipalities to introduce reductions in rates, water, sewerage and electricity charges. In a proposal submitted to Joburg mayor Geoff Makhubo, the Johannesburg Property Owners & Managers Association (JPOMA) says it’s time the city’s leadership and utility providers come up with a pragmatic plan to deal with the "economic and financial impacts of this unfolding Covid-19 disaster".
JPOMA, which represents the owners and managing agents of about 60,000 affordable housing units in Joburg’s inner city, has asked for a rates rebate for inner-city landlords; zero increases in rates, electricity and water charges; a 50% reduction in sewerage charges; and the immediate reinstatement of the 6kl free water provision to poor households.
JPOMA chair Nic Barnes believes this will create a safety net for the poor, especially for the more than 500,000 people living in the inner city.
Meanwhile, the latest figures from MSCI, which collates real estate data on behalf of Sapoa, shows that rates and taxes make up 10% on average of the gross rentals that commercial tenants pay to landlords. When utility charges (electricity, water, sewerage and refuse removal) are added to the equation, it jumps to 22%. Typically, landlords pay rates and utilities to municipalities but recover these costs from tenants by adding a rand/m² rate for operating expenses to monthly base rentals.
Rates and utilities for shopping centres, which have been hit particularly hard by the lockdown, together account for 64% of operating costs.
The rest is made up of cleaning, security, building management and tenant installation costs, among others.
MSCI executive director Phil Barttram says while the rates and taxes component may not seem to be material as a percentage of gross rentals, it has a large weighting in the operating cost bundle. More importantly, rates and taxes have surged by an annualised 10.3% over the past decade, nearly double the increase of base rental increases over the same time, Barttram says.
The disproportionally large increases in rates and taxes, coupled with similar hikes in electricity, water and refuse charges, have placed rising pressure on tenants’ total occupancy costs. It also limits landlords’ ability to increase rentals.
"As neither property owners nor tenants can absorb full rates and utility increases it tends to get shared, which undermines the growth potential of both parties," says Barttram. "High municipal charges also crowd out spending on other essential services, which could potentially drive growth and employment."
While it remains to be seen if and when other municipalities will follow the lead of Stellenbosch and Cape Town, the property sector hopes that the government will issue a ministerial directive to force local councils to introduce relief measures for ratepayers.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.