Why Municipal Elections are Important for Property Owners and Investors

Local government plays a major role in governance and the provision of basic public services in the country. Whoever governs the municipalities holds the key to South Africa’s success and attract property developers and investors.

SA has many well-run municipalities, but equally, there are those that are struggling because of poor management, corruption or a lack of adequate resources.

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Stakeholders in the Commercial Real Estate industry represented by the South African Property Owners’ Association (Sapoa), have been seeking for a constructive engagement with Government the past years.

Property owners believe more attention should be given to the real effects of disproportionately high rates and taxes increases by municipalities, says Ortneil Kutama, SA Commercial Prop News Media Director.

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"The owners have been up in arms over the increases, questioning the legality of the hikes charged to them in accordance with the law," Kutama said. 

Perhaps the most striking observation, is the inconsistency of property valuations, especially in the residential sector, where properties are most often under-valued.

Irregular as well as unauthorized expenditure in municipalities has more than doubled since the current administrations took office five years ago, to R14.75 billion, revealed last month by Auditor General Kimi Makwetu on his report on local government audit outcome for the 2014-15 financial year.

A recent survey by non-profit advocacy and research organisation Good Governance Africa (GGA) involved all 234 of SA’s local and metropolitan municipalities, showing that all are not equal in terms of efficient functioning and reliable service delivery. The 2016 Government Performance Index found that, of the 20 top-performing municipalities, 15 were in the Western Cape, three were in the Northern Cape and two were in the Free State.

The 20 worst-performing municipalities were almost exclusively in the Eastern Cape (12) and KwaZulu-Natal (six), with one in the North West and one in Limpopo.

However, in comparing municipalities like this, it is important to factor in their economic backgrounds. Municipalities in the Eastern and Northern Cape are largely rural while those in Gauteng and the Western Cape are more developed, with more advanced infrastructure. The basic levels of functioning of these municipalities will therefore differ, although incompetence and maladministration will cripple even the most efficient systems.

When launching the “Back to Basics” programme, Pravin Gordhan, then minister responsible for local government, said that a third of municipalities work well, a third are scraping by and a third are “frankly dysfunctional”.

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Kutama adds: "This is the chance for South African citizens to vote for the people who they believe will best look after their service delivery interests such as water and electricity; the maintenance of parks, roads and other public spaces; and the implementation of housing projects drawn up by national and provincial governments."

The need to strengthen dialogue and the overarching relationship between government and the private property sector has become imperative, not only for real estate players to get their projects off the ground and their voices to be heard, but to assist the public sector to bolster economic growth.

Marius Muller, CEO of Pareto Limited, which has landmark retail assets across the country, explains that poor financial discipline at local government level has led to municipalities significantly increasing rates for property owners. However, with a challenging and stagnating economy, it is becoming increasingly difficult for businesses, landlords and communities alike to take on this tax burden.

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A recent research by Sapoa confirms that, over the last decade, rates and taxes have consistently increased at a rate higher than inflation across SA’s eight metropolitan municipalities. From 2005 to 2014, the rates and taxes annualised rate of inflation was around 8.2%. Before this, the increase in rates and taxes already exceeded inflation, but the research highlights a noticeable acceleration in the growth rate since 2005.

South Africa's 2016 local government elections will take place on Wednesday and are likely to produce shifts in power at municipal level.

The elections are expected to be contentious, particularly in the country’s metropolitan municipalities.

The polls will be the fourth local government elections since a new system of local government was adopted under the post-1994 constitutional framework.