New law to ravage rental market

2011-07-17 09:48

Johannesburg - The proposed amendment to the Municipal Property Rates Act recently published in the Government Gazette could sound the death knell for the residential rental property market.

Property experts have said the amendment also represents a serious threat for the rest of the housing market – and could put property prices under serious pressure.

People renting property will probably also have to pay more.

In terms of the amendment a property used to house people other than the owner for financial gain will, in terms of property rates, no longer be assessed as residential property.

What this amounts to is that investors in residential property who let the property will in future be assessed at the much higher business rate instead of the residential rate.

Ben Espach, a property valuer and expert in municipal property taxation, said the amendment would result in a significant rise in property rates.

The property rate for a person letting a Johannesburg property worth R1m will rise from R372 a month to R1 533. In Pretoria the rate for a property with a similar value will rise from R622 a month to R2 015.

In Cape Town that for a R1m property will increase from R375 to R935.

Property experts reckon the proposed amendment could lead to at least two worrying scenarios.

First, investors who bought property to let could flood the market with their properties because the additional expense no longer makes it worthwhile to let the property.

Someone in Pretoria letting a R1m house currently receives between R6 000 and R7 000 in rent. If he has to cough up an additional R1 400 for rates, his yield is certainly no longer worthwhile.

These units could further swamp the property market, which already has a significant oversupply of houses. Prices would come under pressure.

Second, owners could try to pass the rate increases on to tenants, making rentals unaffordable.

Many households are forced to rent these days because their financial position does not allow them to buy.

Rode & Associates property valuer Erwin Rode said the amendment is unfortunate as the country needs a powerful letting market with a segment of the population preferring to rent a roof over their heads than to own it. He said renting also afforded the workforce mobility.

He said the amendment would discourage owning a property for purposes of letting it, which could be the death knell for the rental market

The demand for property for the purpose of letting seriously declined after downturn in the housing market.

According to First National Bank’s property barometer, the number of properties purchased with a view to letting them was a mere 8% of total sales in the second quarter of this year.

At one stage more than a quarter of all property was sold to investors.

Dr Andrew Golding, chief executive of Pam Golding Properties, said the amendment came at a time when the residential property market was staggering under a profusion of negative factors and regulatory issues.

He believed the biggest threat was that additional stock would come to the market while there was still an oversupply.

Seeff Properties chairperson Samuel Seeff said the amendment would deter investors from entering the rental market. This could eventually negatively impact the entire property market.

Schalk van der Merwe, a property attorney at VFV Mseleku, said the investor market is an important part of the residential property market because investors set many developments in motion by buying the properties off plan.

FNB property analyst John Loos said the initial impact on the tenants would be negative, because they would have to absorb most of the additional cost. But Loos believed that in the long run there would be a limited supply of rental properties, which would be positive for rent increases.

  • Bullhunter - 2011-07-17 10:20

    Will the ANC apply its draconian laws to the shack to rent attached to a RDP house or is its cannon fodder exempt?

      Mad Dog - 2011-07-17 14:25

      RDP houses are not to be rated as Commercial! Yay!

  • Anthony - 2011-07-17 10:38


  • Johan van Zyl - 2011-07-17 10:40

    Zumanomics in action

  • Captainmorgan - 2011-07-17 10:43

    You can't call our gov. unimaginative when it comes to sucking more & more money out of the people.Just think what can be achieved if they used that energy in a positive way,SA could become a world power!!!

      Mad Dog - 2011-07-17 14:24

      You are an impostor! Not the real Captain Morgan! But you are right about the anc government, great at sucking money!

      will294 - 2011-07-17 19:40

      Unfortunately our present government are not imaginative as they cannot think more that move ahead. They are blissfully ignorant of the consequences of their actions

  • David Kirk - 2011-07-17 11:15

    This really is a particularly troubling proposal and no can't help but feel that the consequences and repercussions for South Africans of all incomes and means just haven't been thought through. I'm hopeful that sense will prevail, but in the meantime here is some analysis of the potential impacts in a number of areas.

      will294 - 2011-07-17 19:38

      Regrettably none of the laws passed are EVER thought through properly. This is what happens when total incompetents are voted into power. We seem to have one of the worst governments on the African continent.

      Prince - 2011-07-17 20:58

      I read the article! Quite informative. Question, how will the government know that I own 2 or 3 properties that are on lease, not through an agent, but directly dealing with me, and the money, i collect in cash? I feel that it's time I manipulate the system a little.

  • Peter Leonard - 2011-07-17 11:20

    Yet another way for the government to make up the funds they have fraudulently siphoned away due to corruption. *yawn* ANC you are so boring.

  • kimlen804 - 2011-07-17 11:52

    According to article on Property24 objections can be sent to or faxed to 012-3344811. The deadline is FRIDAY!!!

  • Goofster - 2011-07-17 11:54

    The floggings will continue until the morale improves.....

      Sheda Hab - 2011-07-17 19:54

      Those ANC supporters out there(you know the guys that brand anyone, pointing out government screw ups, as racist) what do you have to say?

  • PhatCatt - 2011-07-17 13:42

    Of course, the solution is to henceforth treat your second residential property as an actual commercial property, since it is being taxed as such, and maximise the revenue earned therefrom. Therefore I will kick my tenatns out and turn those properties into brothels, pool-halls, strip clubs etc. and I don't have to go to the hassel of applying for commerical rights as the council already regards them as commercial properties! Winner!

  • uysbeer - 2011-07-17 13:46

    And the money is for Malema to build his R16Mil house and the rest of his crowed that support him will stay in there mud shacks hahahahahah!!!!!

  • Ross - 2011-07-17 13:48

    Another form of nationalisation, the end is nigh.

  • gmain - 2011-07-17 13:48

    Oh my word.... so the cr%p continues. Short term thinking by politicians not educated enough to see the bigger picture. cANCer for sure.....

  • kudu - 2011-07-17 14:02

    What do they want to do with all that money? Corrupt officials buying more Merc... etc ridiculous.

      Warren - 2011-07-17 22:04

      Mercs & BMWs are so yesterday dude. The future is helicopters & private jets.

  • Mad Dog - 2011-07-17 14:22

    TRust FNB to be positive about increased rentals and ignore the plight of the people paying the rent! The anc government has gone idiotic! They are desperate to screw the people keeping the economy going. Do not support the anc! Vote DA in the next elections! Very important to everybody!

  • Gordon49 - 2011-07-17 14:31

    Another way to squeeze more money out of legitimate, tax-paying citizens, of predomoinantly White, Asian and Coloured extraction, whilst squaters, illegal immigrants and asylum seekers/refugees, of predominantly black extraction, are exempt, of course. They will, one day, kill the Golden Goose and then what???

  • pickledknees - 2011-07-17 15:09

    More and more reasons to circumvent the law, eventually we will all be criminals in this country, democracy at work.... majority rules.

  • Ann Wilson - 2011-07-17 15:14

    Oh my, the ANC seems intent on killing all the geese that lay the golden eggs in South Africa - and then what?

  • deminimus - 2011-07-17 15:29

    When you kill the goose, you do not get any more eggs.

  • ben petzer - 2011-07-17 15:34

    The landlord will no doubt recover from the tenant.

  • eastcoaststi - 2011-07-17 15:36

    This action will inevitably only apply to houses over a certain value -like with water, electricity, rates etc. The goose is in enough pain....

  • Nuck Choris - 2011-07-17 15:56

    This is madness. The Anc is systematically raping people who have worked hard their whole lives, bought one or two properties to rent out for retirement income, only to find that they will now pay additional rates. It is crazy and will destroy the property market further. Maybe this is their goal, to get everyone on the same level. eg have rental property in PE. Paid 1,6 mill and at present can only rent it out for R6000 per month.(depressed market) Rates are R600 per month an the levy is R900. With the new proposed rates it will not be worth it as you have to factor in maintenance, bad debt etc. You can only go so far before revolt

      Saffer - 2011-07-17 21:32

      ... will also put a lot of retired people into poverty, and onto State Pensions. Well done ANC!

  • Lang Henning - 2011-07-17 16:18

    The only people who will suffer will be those who can't afford to buy a home in the first place as their rent will be increased to meet the higher tax.

  • Phaedioux - 2011-07-17 16:20

    It would seem that newer ways of refilling the depleted and looted coffers are being created - don't they understand that they actually have to use these funds on service delivery?

  • M - 2011-07-17 16:38

    But isn't the ANC now biting of its nose to spite its face. Property rates and taxes can be deducted as an expense when you submit your tax. So surely, that means they will get less in income tax.

      BrokenLink - 2011-07-17 23:39

      Making less profit to pay less tax is not the best business principle though :) But nice one for spotting a very thing silver lining!

  • Precious - 2011-07-17 17:25

    Soon there will be no middle class it will be the very rich and the very poor which will be 90% of the population. Instead of making it easier for people to pull themselves out of the squatter situation and into decent housing when they get better jobs the government is pushing everyone down. Unfortunately the general South African populace is so used to being told what to do they don't stand up for their right to a better life! I say we should all stand together and say "This is enough!!"

  • McFreak - 2011-07-17 17:39

    This is what they do ........ beat the sapping out of anyone who tries to create capital. Unless of course you fail woodwork, then the world is your oyster!!!!

  • Butch - 2011-07-17 18:22

    the so-called canon fodder are the ones to be hurt the most as the rentals will escalate to cover the increases. Butch

  • Deon - 2011-07-17 19:02

    Huh? Why is this strange? It IS a business, so it must be taxed as a business at all levels. I am sure these same people declare the income earned as business income in order for them to be able to deduct costs against it, e.g. interest on bond. So, what is there to say?

      achorsfall - 2011-07-17 21:03

      Thats a bit naive dont you think. A business / investor will only invest if he can make money... this means that in the long run the tenants will have to pay this increase in the rate otherwise investors will not invest. The tenants are residential users - is it fair that property owners pay rates significantly less than property renters... they all use the property for the same purpose.

      Saffer - 2011-07-17 21:29

      Actually Deon, most rental property is NOT purchased for business reasons, but for retirement funding. And because rental income is taxed, costs (interest, maintenance etc) are presently deducted from that income.

      BrokenLink - 2011-07-17 23:38

      So from the R7000 earned on the rental, you want to take R2000 for property tax alone, then tax you 38% for business income on the profit. Hopefully you are not renting, because you will soon find no more available properties. Its just simply a way for the government to make a quick buck while trying to punish the "rich". I have 40 tenants in the R1500 - R3000 price bracket, the moment this law goes through they will get an addition 10% increase in rent which they can not afford. Add to that 25% increase on electricity and half of them will have to move to dodgy neighborhoods.

      RoyoF - 2011-07-18 07:33

      The probem Deon is that the rate rise is ridiculous its not a few percent but A FEW HUNDRED PERCENT .What do you get for this rise and ammendment -increased security ,cheaper electricity,well maintained roads and parks , cleaner air ,functioning infrastructure,cultural and leisure facilkities ...NO you get nothing just the opposite of the above and worse ...thats the problem fool . And it gets bigger than that . Many pensioners and retired people have 2nd and 3rd props to rent out as a bolster to their rapidly shrinking retirement savings . If you take away that you are going to have a massive pesion and healthcare drain on the state ...all so some muppets govt can continue to fund their lavish and excessive lifestyles . Its pure robbery ...nothing else .

      will294 - 2011-07-18 13:29

      So the effect of this is that less people will buy properties to rent - or they will put up the rents to cover the extra that they will have to pay. Shortage of stock will also have an impact and rentals will go up because of supply and damand factors - the end loser will be the tenants ! Lots of people use this avenue to make provision for retirement income. The authorities know that they are twisting the rules because they short of income. There is a big difference between a business being run from home and a home that is being rented for purely residential purposes and they know it full well.

      Frans - 2011-07-29 18:54

      in my case it is an investment. i did not want to fall for the annuity promises that was made to just about every pensionar now that can hardly pay for food. if this is the case and properties are penalised, lets increase tax then on all kinds of investment including pensions? Maybe deon does not own any 2nd properties.that is why he is supporting it?

  • hans81 - 2011-07-17 19:07

    If this goes through I will refinance my 7 investment properties, take all the equity and move to New Zealand. The banks can go ahead and sequestrate me or try and find a buyer all by themselves. I will not be financing any of this ^%$%.

  • parmalat - 2011-07-17 20:56

    i think this is to stop the guys from renting their RDP houses out!

  • RogerRabbit - 2011-07-17 21:12

    It would be good to see how other countries tax this scenario if you want to send in comments. Every now and again we see municipalities requesting Eskom and the provincial/national government to write off their bad debt - this will probably spiral further out of control. Ways must be found so that everybody pays a little - rather than a few paying more and more.

  • Izak - 2011-07-17 21:37

    What is the difference in service I receive? The pot is empty now they steal somewhere else. I have always paid my taxes and been generous to the tenants. The markets are unrealiable. How do you provide for a pension now so that you do not become one of the masses feeding of the few that pay tax? They complaining that we as South Africans do not safe enough and when you do they abuse you.

  • Lorax - 2011-07-17 22:10

    Will have to seriously up the rentals for the UJ students currently staying in the one I'm trying to pay off. Sorry students, ultimately you guys are the ones getting schtupped.

  • KarelBotha - 2011-07-17 22:15

    Very good news. Property suddenly zoned for business use and make it easier to start a business at home and pay business rates without the shlep.My neighbor's saloon will not be at threat. Imagine the peaceful neighborhood at night.

  • BrokenLink - 2011-07-17 23:51

    As with most ideas though up at one of the ANC`s open bar conferences, the idea seems to something that can mentioned in an election speech to give the masses the idea that the rich are being punished, while in fact the tenants will be the ones who suffer most.

  • J T - 2011-07-18 00:56

    The Lessee is NOT liable for ANY rates and taxes ~ directly or indirectly! The Lessor/Owner is however liable. The best way for any Lessor would be to consider a long Lease scenario of approx. 3 to 5 year duration with a favourable lease agreement. Win-win for Lessor and Lessee, based on the well known "Huur gaat voor koop" legal maxim. So doing will then, I believe will protect the Lessor and Lessee concurrently. One cannot 'see the logic' of abnormally increasing Municipal rates when service delivery is sporadic and/or non-existant! Does South Africa have a Rent-Payers Association or similar? Oversighted jurisprudence perhaps? Class actions as remedy?

  • Doug - 2011-07-18 08:23

    It is true, this just another quick and easy tax (property is inflexible) and it wont be the last. I confirm - vote and support DA. The few properly managed municipalities (not broke) are DA. Mandela should join the DA for his birthday that will give the ANC a wake up!

      Rajty - 2011-07-18 15:11

      And what will the DA do- ease taxes...let the rich be richer...yah...yawn...tthere goes the saffers running for the hills.

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