Every commercial property comes with monthly overheads, including building maintenance, insurance, security and tenant services. Obvious expenses aside, there is one significant cost that owners often overlook: municipal rates.
Rates are rising across SA, pushing up building overheads
As of 2018, municipal rates make up 22% of monthly building management costs – and this percentage has doubled since the year 2000. According to SAPOA (The SA Property Owners’ Association), rates are currently the second-fastest growing expense category after electricity – and they show little sign of slowing down.
Cape Town property owners are no strangers to the high cost of rates. While the 1000% increases seen recently in Johannesburg may not have been repeated in the Mother City, property owners should definitely factor in municipal rates as a major budget item.
Inconsistency in rates causes needless uncertainty
Property owners have to contend with two major challenges when it comes to rates: annual price escalations and large differences in rates between municipalities.
- It’s not uncommon for municipal governments to apply different rates on commercial property – and this discourages property development and sales in areas with high rates.
- Identifying municipalities with lower rates is a strategic decision that can save property owners a lot in the long run – especially if the property’s ROA is comparable to buildings in areas with higher rates.
- Property owners need to remain vigilant about rates and express their concerns about rate increases to their local municipal government – with SAPOA’s assistance if necessary.
Rates may be inevitable, but high monthly costs aren’t
Taxes may be an inconvenient part of life, but there are measures building owners can take to keep their overall monthly costs down. These will benefit both owner and tenant.
Smart budgeting, green technologies and pro-active building management with the aim of reducing other monthly expenses are essential in the current climate of rising municipal rates.
If you’re considering buying or selling commercial property in the Cape Town area, we’d like to introduce you to our portfolio of green, innovative and expertly-managed buildings. Contact us today.