AA - April 2021

Author:  Gerhard Kotze
Managing Director of the RealNet Estate Agency Group
16 April 2021

Property owners in South Africa to be hit by price increases in the next few months

Record fuel price increases are grabbing headlines at the moment, but home sellers should be even more concerned about the increases in municipal tariffs that will be implemented in just a few months’ time, says Gerhard Kotzé, managing director of the RealNet estate agency group.

These are set to be bigger than usual this year and could substantially increase your holding costs as a seller if your property is not priced correctly and takes a long time to sell, he said.

Citing data from the South African Cities Network (SACN), Kotzé said that the average municipal bill for the four main household types in nine major municipalities in South Africa ranges from R1,425 per month for low-income households, up to R6,119 per month for high-income households.

The research also shows that electricity charges make up the biggest percentage of all municipal bills, ranging from 42.3% to 54.7% of each bill, and that water comes second, accounting for between 16.7% and 28.2% of the total charge.

“And for most households, the cost of both these commodities is set to rise substantially from July, which is when most local authorities implement their new annual tariff structures,” said Kotzé.

“Those who receive their electricity supply directly from Eskom will already be experiencing an increase of around 15%, and electricity costs in most municipalities are expected to rise by the same percentage from 1 July, thanks to the recent High Court order formalising an agreement between Eskom and the National Energy Regulator.

“Meanwhile municipal water costs are expected to increase by between 6% and 10% this year, having already risen by far more than the rate of inflation over the past few years, while refuse removal and sanitation cost increases are also expected to be higher than the rate of inflation in most cases.”

Most cities are also contemplating stiff rates increases in the 2021/ 22 financial year to try to claw back some of the revenue lost due to the Covid-19 pandemic-related job and business losses and the resulting inability of many property owners to pay rates last year, said Kotzé, as well as the exodus of many ratepayers to smaller towns on the coast and in rural areas.

“It is thus not unreasonable to expect that the monthly municipal holding costs on an unsold property at the upper end of the scale could easily be R10,000 per month or more after July.

“And to that one must then add the monthly bond repayment, insurance, maintenance costs and any levies payable if the property is in a sectional title complex or estate. On a property valued at R1.5 million, the total monthly holding cost could in fact easily add up to around R25,000.”

Property impacted

Citing the latest FNB Property Barometer, Kotzé said that 72% of home sellers currently have to drop their initial asking price by around 10% in order to achieve a sale, which translates into R150,000 on a home initially priced at R1.5 million.

“Now many may feel that this is just too big an adjustment to make, but it is our job as estate agents to point out to our customers that the chances are good that they will end up making it anyway, while also possibly incurring several months’ worth of holding costs if their property is regarded by potential buyers as being overpriced and remains unsold.

“And those holding costs can quickly add up to a large sum of money that most home sellers could put to much better use – to pay a bigger deposit and reduce the monthly bond repayments on their new home, for example, or to settle some debts, which is what many home sellers are currently seeking to do.”

Looked at another way, says Kotzé, every month’s delay in selling your home diminishes any profit you stand to make on the sale, so it does not make sense to hold out for an asking price that is above what buyers in your area are currently willing to pay for similar homes.

“Indeed, the objective should not only be to get your home sold for the highest price possible, but also get it sold in the shortest time possible, in order to maximise your potential profit.

“This is why it is so important to enlist the help of a reputable and professional agent to first advise you on the correct asking price and then efficiently market your home to the biggest possible audience of potential buyers in order to reduce the listing time.

“The average period between sale and registration is now at least three months, and home sellers cannot access the proceeds of their sale until registration is complete, so it is important to get the process started as soon as possible and avoid high holding costs by pricing very accurately.”

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