Things are starting to get a little hairy for homeowners in and around the suburbs of South Africa as the increases in municipal rates and utilities really start to bite.
The news that the City of Tshwane (Pretoria) has proposed that the sanitation tariff be raised by 10% for the next financial year and 8% for the following three years cannot be good for home owners who are finding it increasingly difficult to make ends meet. Unfortunately, it's not the only increase in the cost of basic services that will see the price of refuse removal rising by 25% and the cost of water attracting a further 10% hike. And as if all of this wasn't bad enough, the city has also proposed that property rates be increased by 10% for this financial year, followed by additional hikes of 8% for the next two years.
The question that needs to be asked is whether or not there is a risk of municipalities pricing themselves out of the market and thus deterring those looking for jobs and homes from living within their boundaries? While it may seem a tad far-fetched to assume that people will actively seek work in towns and cities that offer lower prices for basic services and municipal rates, given the way that things are going in certain areas this may well soon be a reality.
Reason to be cautious
Richard Grey, CEO of Harcourts Real Estate, says that buyers are now definitely more concerned about what the monthly municipal bill is likely to be. “And with good reason. Different local authorities calculate their property rates and utility charges differently, and this can have quite an influence on the affordability of properties, in terms of the National Credit Act.
The reason for this is that the Act requires that not only all debt commitments, but also all regular and projected household expenditure be taken into account when a potential buyer applies for a home loan, so that he or she will not become over-committed financially.
Grey says the projected expenditure includes the municipal rates and probable utility costs applicable to the property, and if these would put the buyer beyond his affordability limit, his loan would quite likely not be approved.
Get your property valued
This situation has been exacerbated over the past five years, he says, by huge increases in Eskom’s electricity charges and by the higher values placed on many residential properties as various local authorities update their valuation rolls. Higher values placed on many potential buyers, especially first-timers and those on fixed incomes, cause them to turn their attention to areas where property valuations and city council charges are lower.”
While the cost of municipal rates and services may influence a buyer, according to Grey, it's not the only consideration.
“More and more homeowners and buyers have started to delve deeper into just what it is that they are getting, or are likely to get, in return for their contribution to municipal coffers.
“More and more homeowners choose, for example, not to purchase in areas where there are known problems with water supply or treatment, or where the electricity supply is erratic. And homeowners would like their roads to be maintained, their streetlights to work and their rubbish to be collected on schedule.
“And as a result of this increase in awareness, badly run local authorities are likely to find it increasingly difficult to attract private sector investments including commercial or residential property development, which means that their rates base will shrink and they will have less and less income with which to provide any services.”