Home » Alarm bells for property owners in South Africa
Africa Business Property South Africa

Alarm bells for property owners in South Africa

Steep increases to municipal property rates and tariffs are forcing tenants and property owners to hunt for better deals – and many are looking to the Western Cape as the ideal location.

Adding pressure for property owners is the fact that there appears to be no relief from these hikes on the horizon, meaning South Africans should expect above-inflation increases to continue.

The latest commercial property finance insights from banking group FNB shows that rates and tariffs this year are hitting harder than usual as property income growth has been under pressure from long-term economic stagnation.

The bank expects further tweaking of national property values and heightened business migration in search of a “better deal”.

Rising costs of electricity, water utilities and more will push companies and residents to reconsider properties based on the rates and tariffs associated, the bank said.

FNB said that the percentage of property income spent on electricity costs in South Africa increased sharply from 6.4% in 2007 to 12.2% in 2012 and has stabilised around those levels through to 2021.

Property taxation costs have also nearly doubled from 5.12% in 2007 to 10.35% in 2021.

This environment of economic stagnation over this period has made operating costs far more of an issue than in the stronger years previously, the bank said.

The tenant population in South Africa has also become more financially constrained, leading to a decline in real rentals.

All Property Net Operating Income has fallen by a cumulative 19.8% in real terms from 2016 to 2021, with real base rentals contributing to a 5.8% decline over the same period.

This resulted in a cumulative decline of 26% in average capital value per square metre.

FNB noted that in this challenging economic and property rental market, rates and tariffs are becoming more important for both landlords and tenants, with the quality of municipal and utilities services received in return also playing a significant role.

FNB said that in the near term, it is unlikely that there will be some reprieve for property owners: “It is difficult to see above-inflation municipal rates and utility tariffs ending.”

“More downward pressure on real property net operating income and capital values, in part from these key operating cost sources of pressure, is thus likely.”

As a result, business activity is expected to shift drastically across the geography of South Africa, as seen in 2021 when a high-profile cheese factory moved from Lichtenburg to Durban as a result of water, electricity and supply constraints, said FNB.

According to FNB, many property funds are pointing to the Western Cape as the stand-out region for the move.

The province appears to be increasingly outperforming the rest in terms of service delivery, infrastructure, household and business investment retention and attraction, and economic and property market performance said FNB.

Source : Business Tech