Funding the Johannesburg of the future
The City of Johannesburg’s new Rates Policy, set for implementation on July 1, will see property rates across the board increasing by an average of 5%. The business rates will also increase by 5%. However, the ratio has been dropped from 3 to 2.8, thereby effectively reducing the annual increase for business.
Finance MMC Geoffrey Makhubo noted in tabling the 2014 Budget that property rates fund approximately 40% of the cost of services, including road infrastructure, parks, the zoo, health, transportation, public safety as well as other community related services. Determining the appropriate property rate tariff is therefore a crucial part of the City’s budgeting process, he said.
“In setting tariffs the City has to balance tensions around affordability, economic conditions and input costs whilst also ensuring that tariffs are cost-reflective, especially for trading services such as water and sanitation, electricity and refuse removal. Tariffs for these services are informed by increases in bulk purchases rather than by inflation. The percentage increases of both Eskom and Rand Water bulk tariffs are above the South African Reserve Bank inflation target range. Given that these tariff increases are determined by external agencies, the impact they have on the municipality’s electricity and water tariffs is largely outside the control of the City,” said Makhubo.
Johannesburg has introduced a step tariff for electricity services, which implies that the more electricity consumers use, the more they will pay, with a view to reducing electricity consumption and benefiting lower consumption users. A 7.05% average increase for electricity in the coming year is lower than the tariff increase of 7.3% announced by Eskom and electricity regulator, NERSA, notes the City. Registered indigents will continue to receive free electricity, free water and free sanitation in terms of Johannesburg’s Extended Social Package.
The tariffs for waste removal services will increase by 6% for domestic households and by 8% for businesses and commercial customers. The proposed increases will generate sufficient revenue to ensure Pikitup can sustain its current service levels and extend services to new areas and housing developments.
This year, emphasis has been placed on cushioning indigent and less affluent households, as well as discouraging the use of properties for purposes other than those they are zoned for.
“Tariffs are set with a view to striking a balance between the wide spectrums of households in Johannesburg and taking particular note of the interests of poor households. Tariffs are also set cognizant of the impact of remaining competitive and attracting investment into the City,” Makhubo said.
Makhubo highlighted certain stipulations in the Property Rates Policy:
- A reduction in the ratio between residential and business rates from 1:3 to 1:2.8;
- Pensioner owners with gross monthly household incomes of less than R7 000 (up from R6 000 last year) and property values not more than R2-million are given 100% rebate, while those with gross monthly incomes higher than
- R7 000 but less than R12 000 (up from R11 000 last year) qualify for 50%;
- Pensioners 70 and older qualify for a 100% rebate and property should not be more than R2-million income will not be considered;
- Pensioners are required to reside in the property to qualify for the rebate; and
- The residential sectional title rebate has dropped from 15% to 10%
Other rebates include:
- 100% rebates are given to organisations responsible for animal protection;
- 20% rebate for heritage sites;
- 100% to child-headed households with a property value not exceeding R2-million;
- 40% for private sports clubs;
- 50% to vacant land outside the development zone; and
- 50% to property owned by organisations in terms of the Housing Development Scheme for Retired Persons Act.
A rebate will also be granted for new building developments identified in the Corridors of Freedom. The rebate will be applied as follows:
- The developer is required to apply to Council (The Planning Department) for these rebates to be activated on approval;
- A quarter of rates as per the category of land for a period not exceeding two years during the construction phase;
- Half the rate as per the category of property during the first year of operation; and
- The property owner will be charged full rates as per the category of property from the second year of operation onwards;
Sihle More, Johannesburg Metro’s Group Head: Property Unit, explains that in determining tariffs, a broad range of factors are considered. “We look at the needs of the City, but also take into consideration the economy and broader market conditions, and try to realistically adjust tariffs. Usually, these increases are inflation-related, but this year, they are generally below inflation. This funding is crucial for projects such as infrastructure development and the maintenance of infrastructure such as roads, parks, and the like, which in themselves do not generate sufficient revenue so that the community is efficiently serviced.”
She notes that the City currently faces a growing challenge of infrastructure that has degraded over the years, and urgently needs maintenance. “In line with the State of the City address by the mayor, the City must start investing into projects to upgrade its infrastructure. The fact that the City is growing also means that high density residential developments and more people are adding growing pressure on existing infrastructure therefore the need to upgrade.”
A new focus in the Property Rates Policy will be unauthorised or illegal use, notes More. This refers to properties used for purposes other than what they are zoned for.
“This new focus highlights the fact that the City acts on input from its citizens. The policy is a document owned by the citizens -— we ask what challenges they have and these are considered at the time of implementing the Policy.
“It emerged that many citizens were concerned about illegal property use. The policy now provides for a tariff for unauthorised use, which is intended to pressure the owner to stop the illegal use or alternatively to rezone the property.”
“Unauthorised use” relates to properties used for any purpose other than the permissible use as per the town planning scheme. More says around 780 property owners are currently undergoing legal processes related to unauthorised use.
“While the City is taking steps to restrict unauthorised use, the public also has a responsibility to use structures in accordance with the town planning scheme, to ensure that whatever facilities are in place actually work to the benefit of everybody,” she stresses.
Keeping commercially competitive
More notes that the City has endeavored to reduce the commercial property rates ratio — bringing it down from 1:3.5 to the current 1:2.8 over the past few years.
“We have been gradually reducing the ratio on commercial property rates, because we understand these businesses need to stay afloat, and do everything possible to assist businesses.”
However, while the City aims to keep reducing the rates ratio, it is also cognisant of the fact that reducing the ratio too dramatically will pass on the payment burden to residential properties. says the City engages closely with the business forum, and is aware of the challenges faced by the business community.”
This supplement has been paid for by the City of Johannesburg. Contents and pictures were supplied and signed off by City of Johannesburg.