The making of a world-class city
The City of Johannesburg's stated vision of being a world-class African city is bold and ambitious, as befits its status as the continent's financial hub.
City authorities are aware of the fact that retaining this status requires bold action to match the ambition, which has been answered partly by the 10-year R110-billion investment plans reaffirmed by city mayor Parks Tau in this year's state of the City address.
These plans are designed to transform the inner city to serve the needs of a growing population that already exceeds 4.4-million.
Central to these plans is the focus on high-density residential developments that Tau said would not only change Johannesburg's urban landscape, but also represent a decisive move away from private vehicle use towards pedestrian-friendly routes.
This future vision for the city cannot happen in isolation, requiring many moving parts to work in unison. One City department that has to consider the implications of this transition on its activities, and vice versa, is the often vilified rates and taxes department.
The projected R6.4-billion it will collect in the 2013/14 year is used to fund crucial and diverse services such as parks, the zoo, health and transportation facilities, road infrastructure, public safety and other community services.
Setting equitable rates for residents
Department director Sihle More has the task of directing operations and setting property rates that are fair and equitable. Despite this, as many as 85 000 residents are at odds with More's department over the recent general valuations roll released in February this year.
This process is undertaken every four years, with the 2013 valuations roll covering more than 812 000 properties — residential, commercial and industrial.
They are used to determine the property rates and taxes that are due to the City every month, with varying calculations and rebates applicable to different categories of property.
More said that objections to the valuations are standard practice and is not perturbed by the opposition to values attributed to properties.
"We are okay with it. We have tried to educate our citizens through the media to ensure people know they can view the valuation roll.
It's important because they will be stuck with that valuation for the next four years," she said.
Residents were able to view the new valuations at ten centres around the city for a period of 73 days since it was released.
Residents who raised a concern within the objection period, which closed in May, then go through a process of their objection being assessed, their property re-evaluated and a ruling made on the veracity of their claim.
If the property owner's objection is overruled a further appeal can be made that will be evaluated by an independent panel at no cost to the objector. Should the property owner again not succeed, the objection could be taken to the high court and even the Constitutional Court.
None of this year's objections have gone this far as yet because the objections are currently being studied, after which re-valuations and the rest of the process will follow with the disgruntled property owners.
More says it is difficult to benchmark the valuation objection rate against other cities, but feels the roughly 10% objection rate is within bounds.
These valuations are critical for More's department to correctly bill property owners — particularly given the cumbersome classifications of buildings and property.
These classifications become critical once you delve into the complex web of rebates, exemptions and tariffs that apply to these classifications.
Rates and taxes contribute to a world-class city
To overcome this complexity, the City's rates and taxes department releases its rates policy every year.
"There are people who have said that the City of Johannesburg has the highest rates, but our studies don't show that. We are comfortable we're not the most expensive city in South Africa," says More.
Revenue generated from property rates and taxes will contribute 17.6% of the City's R36-billion operational budget for the 2013/14 financial year, which is up 11% over the previous year due to the revised property valuations, although the tax rate increase is 5.3%.
The more modest increases over the next two years are shown in the City's medium-term budget, with rates and taxes expected to amount to R7.3-billion in the 2015/2016 financial year.
The new rates come into effect on July 1 this year, and with it the new rates policy.
This document is something of a balancing act. On the one hand, property rates and taxes must be collected to contribute to the city's expansion, and on the other hand it has to be attractive to business and investors while still catering to the needs of lower-income households.
"We have been doing this for the past five years and it has been refined each time," says More. "There is a lot of public participation and if you look at the policy you will see it is about the client, not about the city."
She explained that a lot of the tweaking is around the classification of properties and to ensure that these are adapted to suit prevailing conditions.
Benefits of rebates to low-income households
She cites the changes to the tariffs applied to multipurpose buildings — typically with shops at street level and residential units on the floors above.
"We were charging them business property rates," explained More. "But this was highly contested because they felt it was as if we were punishing the residential users. Previously, they had to have a ratio of 80:20 residential to business in order to qualify for residential rates. We have changed that in this financial year so that if you have dominant use, meaning 50% plus one, we automatically charge residential rates to the entire building."
More said it is certainly a challenge to establish benchmarks against other cities in the country due to the different tariff structures and how they are applied to property classifications.
"For example, a residential property in Johannesburg valued at R600 000 gets a rebate of R200 000, and a sectional title property gets a 15% reduction in the rates. In the City of Tshwane they apply a flat rate. So it is difficult to make direct comparisons."
The rebates are a means by which the City reduces the burden on lower-income households who may own a property that is increasing in value, but adds to their financial commitments.
"It's a way of trying to uplift people and helping with the poverty alleviation model South Africa is trying to adopt," said More.
Other special rebates, as authorised by the Municipal Property Rates Act, include discounts for pensioners based on the property value and their income levels that could result in a 50% or even 100% reduction.
Pensioners over 70 are totally exempt, for example, if they own a property of less than R2-million.
Benefits to ordinary homeowners have also been extended and they are charged only from the first R200 000 value of their property, up from R150 000 previously.
All of these rebates have to be made up somehow, which is where the business property tariffs come in. The business community shoulders this heavier burden by paying a premium three times that of the residential tariff.
More argues that the same principle of taxing businesses higher than individuals applies in the property tariffs game.
Her department is not inflexible, however, having lowered the premium from 3.5 times to the lower rate that applies from July 1 —amounting to a R600-million gift to business property owners.
Coming full circle to the City's vision of revitalising its inner core by making it far more people-friendly, the rates and taxes department has shifted its thinking to not only accommodate this, but promote higher density living.
It is doing so through extending the traditional 20% sectional title rebate only to property owners with high-density buildings.
"We will look at properties built on a hectare of land, for example. It will most probably come into play next year, and we will have to redefine it again further."
Finding a perfect balance
The City of Johannesburg's rates and taxes department releases a rates policy document every year on July 1 in which it outlines the rates that apply for the current financial year.
Director in the department, Sihle More, is confident that this year's edition manages to find the balance between charging fairly (based on property value) while providing sufficient relief for lower-income households.
The policy document concerns itself with how much to charge and how to correctly classify the property according to its use. The complexity of this task can be measured in more than 800 000 properties that City officials have to correctly assign to the 22 different classes.
The list includes everything from residential, business and commercial, sectional title business and residential, to municipal, state, farming and mining. Special use properties include those used for education, religious and public benefit purposes.
Geoffrey Makhubo, member of the mayoral committee for finance highlighted some of the benefits to residents when he announced the City's budget earlier this year. First off, the 5.3% across-the-board increase in property tax rates is below the 7.2% electricity tariff increase.
New policy document shows increased discounts
All residential homeowners are exempt from any taxes on the first R200 000 value of their property. This threshold has been increased from R150 000.
Pensioners also gain from the rebates, with a 100% discount if the owner earns a monthly income of less than R7 000, while those earning between R7 001 and R12 000 qualify for a 50% reduction.
Similarly, pensioners over 70 automatically qualify for a 100% exemption if their property is valued at under R2-million.
More said that while this measure is intended to alleviate the burden on the elderly and vulnerable, it is also open to abuse. She warned, however, that her department would not hesitate to backdate the correct property rates should people occupy the property after the passing of the person who qualified for the benefit.
Businesses gain from the changes to the City's rates policy this year, with the ratio of tariffs reduced to 3 from 3.5 times the residential rate. Properties classified as agricultural residential also receive a reduced tariff at 0.9 of the residential rate.
The City's developmental mandate is supported by full exemption for organisations involved in animal protection and youth development programmes, while private sports clubs receive a 40% rebate. Properties valued under R200 000 continue to receive free refuse removal services, which has been increased from R150 000.
Further support is provided to qualifying households such as the unemployed. A 100% rebate is available subject to an application to the city for rates relief.
Similarly, child-headed households qualify for a 100% rebate if the property is valued at less than R2-million and the required social development department criteria have been met.
Other categories of property owners who qualify for full exemption include those who earn less than the thresholds set by the City as measured by its poverty index, those who are dependent on social assistance and pensioners of certain classes.
Residential sectional title properties currently qualify for a 20% rebate, although the rates and taxes department is mulling changes to limit this benefit to housing units that comply with yet-to-be-set density thresholds. This speaks to the City's ambition to create higher-density accommodation.
Change in tariffs for multipurpose premises
The City's ability to achieve this higher-density residential mandate is also being promoted by changes to the tariffs applied to multipurpose residential premises.
These are generally inner-city properties comprising part business and part residential units.
The City has decided to apply the "dominant use" rule for these properties, meaning that if a property's zoning allows more than one use, the tariff will be determined by whichever use is dominant (fifty plus one percent).
Many of these properties had previously paid the higher business tariffs, thereby stifling development opportunities for more residential units.
The new rates policy similarly applies a blanket tariff to multipurpose business properties on the same dominant use principle, in which case residential users are at a disadvantage.
The department of rates and taxes is always walking a fine line between meeting the City's goals and keeping the populace at bay. Although More believes this document is probably more aligned with residents' needs than the council's, residents are sure to object.
Everyone would agree, however, that trying to match these diverse needs is rarely going to happen.