OWNERS of sectional title units in Western Cape will be forced to dig deeper into their pockets this year as they will be charged individually for property rates and services by their municipalities.

A new rates policy is to be implemented across SA under the Local Government Municipal Property Rates Act 2004. Under the new dispensation, property owners may in some areas be required to pay higher rates. The new policy is expected to be rolled out in Gauteng from July 1 next year, with other provinces following later.

Western Cape will be the first to implement the process, which will take effect from July 1 this year. The Cape Town city council was building up a database, said Nansindaba Accounting and Training SA member Ainsley Williams at the weekend. The act was intended to expand the revenue base of metropolitan councils. Its purpose was to help in building a financially viable and sustainable local government, Williams said. Property rates are set, collected and utilised locally. National and provincial governments do not have the power to levy rates, nor do they share in the revenue collected. The cost of implementation of the policy and valuation roll in Johannesburg is expected to be in the region of R33,6m over three financial years.There are about 40000 bodies corporate in SA, comprising 800000 unit owners of sectional titles with about three occupants per unit.

Of the estimated R5bn raised a year in levies in the industry, about R3bn is in arrears. At the date of transition it is expected that only R2,5bn turnover will be raised a year.
Williams said that rates under sectional title schemes were charged to bodies corporate based on the land value. “The rates usually amount to about 50% of the levy bill.” from July 1, with the transition, owners under sectional title schemes can expect to be charged individually for their rates.

“This could cause endless problems for owners,” Williams said. The rates would become known to owners only once the policy had been implemented, said independent business management consultant Joe Gatz. In addition, a valuation roll had to be developed, which would include all sectional title owners and the market value of the property based on the land and improvements. Gatz said that the process would affect not only individual owners but businesses too. “Many businesses fall under sectional title schemes.”

Although levies raised from July 1 should decrease by the portion that was allocated to rates, bodies corporate could well experience serious financial problems due to the practice of rolling over current-month income and paying arrears to service providers, said Gatz.

For instance, bodies corporate will still need to pay the June rates account (perhaps for additional months if they are in arrears) during the month of July, but will not be generating any income to pay this amount. The more affluent bodies corporate that have sufficient reserves and are not in arrears with their municipalities will be able to ride out the cash shortfall.