Who pays the ultimate price?

Who pays the ultimate price?

Private Property South Africa
Lea Jacobs

One of the most important aspects associated with buying property is location.

Experts have been telling us this for years, saying that where the property is situated is just as important as the price, and even if a buyer has to pay more to get into the right suburb, it will be worth it in the long run. This of course makes perfect financial sense. House prices are driven by demand and if an area is considered to be a desirable place to live and is therefore popular, prices will continue to rise.

But what happens when a previously ‘good’ area turns bad through absolutely no fault of the homeowners? Unfortunately, this is a scenario that increasing larger numbers of South Africans are facing given the current financial state of so many municipalities. In a recent report released by RealNet, MD Jan Davel notes that only five percent of South African municipalities are currently able to achieve a clean audit report from the Auditor General.

"A clean audit is a metaphor for the overall performance of a municipality. When the financial affairs of such an entity are not managed properly, it is often the case that nothing else is either, from rubbish collection and street lighting to health services, water purification, libraries and all sorts of other facilities. The ability to make provision for future repairs and improvements is also affected."

It doesn't take the skills of a financial wizard to understand how a lack of any of the aforementioned services could affect an area and the adverse effect this could have on future property values.

Failure to provide the most basic services such as refuse removal and ensuring a reliable supply of potable water can have a devastating effect on a suburb's desirability in a very short space of time. Aging infrastructure that is not adequately maintained and which leads to frequent breakdowns is an issue that buyers are going to raise more and more before making a buying decision. No one wants to move into their dream home only to find that the water supply is intermittent and haphazard or that refuse is collected sporadically and bags of rotting rubbish are visible through the long grass of the unkempt verges.

"The financial health and proper management of a local authority is likely to become an increasingly important consideration for South African homebuyers, along with the presence of good schools and a good transport infrastructure. In short, they will go where the service is good and the rates are fair," says Davel.

He says that the preference for environments that are perceived as safer, cleaner and better run than many city suburbs is already evident in the relocation of many families to certain country and coastal towns while the breadwinners become weekly commuters. He also believes that the weakness of many municipalities will also strengthen the appeal of large security estates that are so well run by their home owners' associations that they are virtually independent of municipal services.

Sales in the buy-to-let sector of badly run areas are also likely to drop. As Davel correctly points out, currently the low activity in this area of property ownership is mostly due to economic reasons. However, potential investors are also worried that if the areas they buy into are badly run, they could be left holding a worthless asset in a place where no one wants to live. Disturbingly, it appears that most of the municipalities which have achieved clean audits are not bustling metros with a high demand for rental property.

However, Davel says, if these municipalities play to their strengths now, these areas will soon be attracting new businesses (which are just as concerned as homeowners are with the reliable provision of services), new employees/ residents and new developments. This will further boost their tax bases, enable them to become even more efficient and make them a great proposition for investors.

The 13 municipalities that did manage to obtain clean audit reports recently were:

  • The West Coast District Municipality that covers the whole area from the border of the Cape Town Metropole to the border of the Northern Cape;

  • The Swartland Local Municipality, one of those falling into the West Coast District Municipality and encompassing the towns of Darling, Malmesbury, Moorreesburg, Riebeek Kasteel, Riebeek West, Riverlands and Yzerfontein;

  • The Umzinyathi District Municipality in KZN, which includes the towns of Dundee and Greytown as well as the Nquthu and Msinga areas;

  • The eMadlangeni (Utrecht), Richmond, Umdoni and Umtshezi (Estcourt) local municipalities in KZN;

  • The Waterberg District Municipality which covers the area of Limpopo including Modimolle (Nystroom); Mookophong (Naboomspruit), BelaBela (Warmbaths) and Thabazimbi;

  • The tiny Fetakgomo Local Municipality, also in Limpopo

  • The Ehlanzeni District Municipality in Nelspruit and the Gert Sibande District Municipality based in Secunda in Mpumalanga;

  • The Steve Tshwete (Middelburg) and Victor Khanye (Delmas) local municipalities, also in Mpumalanga.

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