New property tax legislation shines spotlight on municipal rates



The new property tax legislation expected to be implemented from July has shone the spotlight on municipal rates - something many homebuyers forget to ask about even though they can amount to thousands of rands a year. Under the new law, all local authorities will base their rates calculations on the combined market value of the site and its "improvements" - or what is built on the site. However, each local authority will still be free to decide how many cents in the rand it will charge property owners, and what rebates it will apply to different types of property, and different categories of owner. There is thus likely to be considerable variation, and homebuyers would do well to try to establish what their future exposure to this cost of ownership will be. The most important questions to ask are the following: * What is the current "market value" being used by the local authority to calculate rates? If it is using last sale price recorded in the Deeds Office, for example, a new sale at a higher price might trigger a higher valuation - and a higher tax bill. Alternatively, the local authority might adjust valuations automatically every few years - and the property you are buying might shortly be due for a revaluation. * What is the current "randage" - or number of cents in the rand being charged as property tax? For example, if it were 50c per R100 of value, then a home with a listed market value of R300 000 would incur an annual tax bill of R1500 - or R125 a month. In future, as now, the randage could differ significantly from municipality to municipality - and might perhaps influence homebuyers' choice of area. * What are the current owners paying? Is their rates bill consistent with neighbouring homes of equal size and condition? If different, why? It may be, for example, that the current owners are entitled to a special rebate because they are over 65 or earning a limited fixed income, and that this would fall away if you bought the property. * Will the anticipated cost of rates influence how much you can borrow to finance the home? Lenders do take into account how much of your income is likely to be used to cover insurance and rates as well as the monthly homeloan repayment, so a higher rates bill may make it more difficult to qualify for a loan. * Are the rates payments up to date? You can't take transfer of the property without a clearance certificate from the local authority and if the current owners have fallen behind with their rates payments, you could be in for a long and potentially costly wait while they settle their arrears. The situation could become even more complicated if the local authority has actually obtained judgment against the current owners for arrear rates and was about to take possession of the property and sell it in execution when you bought it. If all of this seems complicated, it is. But the local authority should be able to tell you exactly how its system works, and a reputable estate agent can ensure that there are no rates arrears that could come as a nasty surprise. All buyers need to do is remember to ask. Article: Property24 News for the latest real estate news, visit www.property24.co.za