Those (somewhat) Hidden Costs

Private Property South Africa
Lea Jacobs

In a recent report on the SA Commercial Prop News website, it was noted that South African homeowners are slowly but surely being strangled by Eskom’s electricity tariff increases and soaring property rate bills.

The good news is of course that Eskom's proposed 16 percent increase has been muted by the National Energy Regulator (Nersa) and consumers will now only have to fork out an extra eight percent. While the lower rate looks relatively good on paper and has been warmly welcomed by the man in the street, the story unfortunately doesn't end there.

First of all municipalities, which according to the report distribute half of the country's electricity, are free to add on their own levies. But before you all rush out and buy property in areas where Eskom delivers electricity directly to the consumer, be warned, the power utility has its own array of additional charges. The report highlights that these consumers pay a daily service charge which translates into roughly R14 a month. In addition, direct customers are also billed for a daily network charge of R42 as well as an environmental levy of R10 per month. Take this and add another 14 percent for VAT to every increase and the reasons why our electricity bills are going through the roof start to become abundantly clear.

This is not the only expense that has risen dramatically in recent years. You cannot own property in South Africa without paying rates to the local authority. There has been an enormous amount of publicity surrounding municipalities which, while willing to charge, are not so willing to deliver a reliable service. While it is debatable whether an under-performing municipality will affect property sales in a particular area, what is surprising is that very few people ask what municipal rates and taxes are payable on a property before they buy.

"This ignorance," says Bill Rawson, chairman of the Rawson Property Group, "is usually not a problem in lower priced properties where levies are low. However, it can cause serious difficulties for those buying in the higher price brackets, where the recent new valuations may well result in these payments being significantly higher come July."

He says that home buyers making an offer in the next three months may find that the old valuations on which their property's rates and taxes were based have jumped to two or three times the previous level as a result of improvements made to the home since the last valuation.

"As I see it, it is the duty of sellers and estate agents to warn prospective buyers that higher rates are likely to be charged - but I suspect that the subject is often deliberately avoided."

Rawson quotes some scary figures to highlight the importance of ascertaining the amount one can expect to pay before making the purchase. Where an upmarket property is concerned, a home's revaluation can result in the property's monthly rates bill increasing from R4 500 to R13 000, depending on the new rates, he says.

"That is obviously an extreme case. However, there will be many homes where the increase will be from 20 to 30 percent and for which the new buyer may not have budgeted."

In some instances, the current owners will query the valuations but, he warns, this process can take months to reach a conclusion. Again, sellers should divulge all information on what is happening to prospective buyers and explain just how much they believe the property's value has grown.

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